Semiannual Report to Congress

October 1, 2004 through March 31, 2005

Semiannual Report to Congress

Office of Inspector General

U.S. Department of Housing and Urban Development

Office of Inspector General
Profile of Performance Profile of Performance

For the Period, October 1, 2004, through March 31, 2005 For the Period, October 1, 2004, through March 31, 2005

Profile of Performance

Audit and Investigation Results Audit Investigation Combined

Recommendations That Funds Be Put to Better Use $940,871,236

Management Decisions on Audits with RecommendationsThat Funds Be Put to Better Use

$1,207,899,773 $1,207,899,773

Questioned Costs $89,988,861Management Decisions on Audits with Questioned Costs $119,366,523

Indictments/Informations 888Convictions/Pleas/Pretrial Diversions 455Recoveries/Receivables $498,294,949Funds Put to Better Use $40,844,193Collections from Audits $7,761,521

Administrative Sanctions 8 1,142Personnel Actions 34Arrests 1,786

Search Warrants 35Weapons Seized 5Subpoenas Issued

Hotline

Civil Actions 32

$942,696,117

$89,988,861

$119,366,523

888

455

32

$498,294,949

$40,961,419

$7,761,521

1,150

34

1,786

35

5

$1,824,881

$117,226

27 379 406
Inspector General Inspector General Inspector General’s Message s Message

Inspector General’s Message iii Inspector General’s Message

On behalf of the U.S. Department of Housing and Urban

Development’s Office of the Inspector General, I hereby

proudly present the Semiannual Report on our activities for

the half fiscal year beginning on October 1, 2004.

Before highlighting HUD OIG’s recent activities, I note

first that it is my continuing honor to serve with the many

talented auditors, investigators and support personnel who

strive unceasingly to further HUD OIG’s mission. Their efforts

have helped ensure that HUD programs are administered

properly, that HUD personnel continue to fulfill their

legislatively-directed objectives, and that sums of wasted or

stolen program funds are recovered for the benefit of HUD’s

target constituents. During the last six months, HUD OIG’s audits and investigations

have achieved a return on investment of 28 to 1, a remarkable achievement and a proper

service to the American taxpayer. HUD OIG shall set the bar ever higher in the months

ahead.

HUD OIG has also established vital relationships with professional organizations

working on housing issues, a practice essential both to industry oversight specifically

and more generally to our mission to deter fraud, waste, and abuse involving HUD

programs. These organizations include the Public Housing Authorities Directors

Association, the National Association of Housing and Redevelopment Officials, and the

Mortgage Bankers Association. We continue to work closely with these organizations

on areas of mutual interest.

I note lastly and with great satisfaction that HUD OIG’s peers within the federal

Inspector General community have recognized our accomplishments, and look to us for

leadership. To this end, I was appointed recently to serve as Chairman of the

Investigations Committee for the President’s Council on Integrity and Efficiency (PCIE).

This committee establishes policies and procedures for the federal Inspector General

community. Since I assumed the Chairmanship, the committee has undertaken several

significant steps, including codification and implementation of a “best practices” program,

an increased focus on excellence in training, and better outreach to state authorities,

fellow Inspectors General and international organizations. I look forward to the many

challenges ahead, and to the myriad opportunities my leadership may present to serve

HUD OIG’s mission.

Here are several of the key areas discussed herein.

We are continuing our efforts on problems plaguing single-family housing. During

the six-month reporting period, audit reports related to the single Family Housing Program

area questioned millions of dollars in costs and made recommendations as to how millions

of dollars in funds could be put to better use.
Inspector General’s Message

Inspector General’s Message iv

Similarly, we have had outstanding results investigating single-family mortgage

fraud, tailoring our forensic audit and investigative activities to complement this need,

support HUD management, and provide deterrence to potential criminal activity.

The rental housing program has been enhanced by the collaboration of the

Department with OIG and State and local law enforcement to locate and stop Section 8

rental subsidy fraud. Our investigative and audit focus is concentrating on fraudulent

practices and the lack of compliance with Section 8 program requirements. We are

conducting 20 external audits of the Section 8 Housing Choice Voucher program during

this fiscal year.

OIG auditors continue to monitor the Disaster Recovery Assistance funds provided

to the City of New York in the wake of the 9-11 attacks. Specifically, we audited the

Lower Manhattan Development Corporation and found that it has generally disbursed

the Disaster Recovery Assistance funds as directed by the Congress.

In closing, I have already stated how proud I am of the men and women of

HUD-OIG and their excellent work. I also want to commend those OIG personnel who

are activated reservists, serving our country in the armed forces in Afghanistan,

Iraq, the Middle East, and elsewhere. They are our strength and our future. I am

extremely grateful that America has such fine individuals dedicated to the service of

our citizenry.

Thank you,

Kenneth M. Donohue, Sr.

Inspector General
Information About the HUD Office of Inspector General Information About the HUD Office of Inspector General Information About the HUD Office of Inspector General

Beginning with fiscal year (FY) 2004, the Office of Inspector General

 (OIG) instituted a return-on-investment (ROI) computation as one method

to measure its contribution to the Department’s mission. This measure takes the total

dollars of recommended “funds to be put to better use1

” and “questioned costs,2”

together with “receivables and recoveries 3” from Investigations and Hotline, and divides

that total by OIG’s operating costs, including salaries, for the period. The resulting ratio

represents the potential amounts that could be realized or better used per dollar of OIG

expenditures either during current or future periods. Many factors affect when and

how much is actually returned so OIG uses recommended amounts in our ROI calculation,

rather than management decisions, to better relate results to the work that was actually

done during the period. Much of this period’s ROI results from the annual financial

audit finding regarding the need to deobligate $708 million in HUD funds. The majority

of contributing factors to the ROI are the results from reviews of external parties who

administer or benefit from U.S. Department of Housing and Urban Development

(HUD)-funded programs. HUD refers many matters such as these to OIG for audit or

investigation, as appropriate.

Our target ROI ratio for FY 2005 is set at 8-to-1. This means that for every dollar

Congress appropriated to OIG, we should uncover $8 that should be returned or put to

better use. The budget for FY 2005 is $103,168,000. The ROI in dollars computed on an

8-to-1 ratio would be approximately $825 million. We are pleased to report that for the

period of October 1, 2004, to March 31, 2005, our ROI is 28 to 1 – far exceeding a goal of

8-to-1.

1

 “Funds to be put to better use” is an item required by Congress and is defined in the Inspector General Act as “

a recommendation by the Office that funds could be used more efficiently if management of an

establishment took actions to implement and complete the recommendation, including (1) reductions in outlays;

(2) deobligations of funds from programs or operations; (3) withdrawal of interest subsidy costs on loans or loan

guarantees, insurance, or bonds; (4) costs not incurred by implementing recommended improvements related to the

operations of the establishment, a contractor, or grantee; (5) avoidance of unnecessary expenditures noted in

preaward reviews of contractor grant agreements; or (6) any other savings which are specifically identified.”

2

 “Questioned costs” are “a cost that is questioned by the Office because of (1) an alleged violation or provision of

law, regulation, contract, grant, or cooperative agreement, or other agreement or document governing the

expenditure of funds; (2) a finding that at the time of the audit, such cost is not supported by adequate

documentation; or (3) a finding that the expenditure of funds for the intended purpose is unnecessary or

unreasonable.”

3

 “Receivables and recoveries” are based on the total dollar value of (1) criminal cases—the amount of restitution,

criminal fines, and/or special assessments based on a criminal judgment or established through a pretrial diversion

agreement; (2) civil cases—the amount of damages, penalties, and/or forfeitures resulting from judgments issued

by any court (Federal, State, local, military, or foreign government) in favor of the U.S. Government or the amount of

funds to be repaid to the U.S. Government based on any negotiated settlements by a prosecuting authority or the

amount of any assessments and/or penalties imposed, based on actions brought under the Program Fraud Civil

Remedies Act, civil money penalties, or other agency-specific civil litigation authority, or settlement agreements

negotiated by the agency while proceeding under any of these authorities; (3) voluntary repayments—the amount of

funds repaid on a voluntary basis or funds repaid based on an agency’s administrative processes by a subject of an

OIG investigation or the value of official property recovered by an OIG during an investigation before prosecutive

action is taken, any of which result from a case in which an OIG has an active investigative role; and (4) “

administrative receivables and recoveries” based on Hotline referrals to HUD program staff.

Information About the HUD Office of Inspector General v Information About Us
OIG Cost of Operations for the Period

October 1, 2004, to March 31, 2005 October 1, 2004, to March 31, 2005

OIG Results FY 2004 OIG Results FY 2004

$1.57 Billion Captured

Administration & Operations

$3,347,692 = 6%

Personnel Services

$36,135,086 = 65%

Centrally Managed/

Funded Services

$15,900,767 = 29%

Questioned Costs

$89,988,861 = 6%

Funds Put to Better Use

$981,832,655 = 62%

Receivables/Recoveries

$500,119,830 = 32%

OIG Charts

OIG Charts vi
Audit Reports Issued by Program

Monetary Benefits Identified in Millions of Dollars Monetary Benefits Identified in Millions of Dollars

800

700

600

500

400

300

200

100

0

$40.8 $34.3

$241.1

$2.1

$708.0

Single

Family

MultifamilyPIH CPD Other

Single Family

29%

Multifamily

16%

Public & Indian

Housing

34%

Community

Planning &

Development

6%

Other

15%

Monetary Benefits Identified by Program

Single Family

4%

Public & Indian

Housing

23%

Multifamily

3%

Community Planning

& Development

0%

Other

70%

Audit Charts vii

Audit Charts
Investigation Cases Opened by Program (Total: 638) Investigation Cases Opened by Program (Total: 638)

Investigation Charts

Investigation Charts viii

Multifamily

12%

(78)

Public & Indian

Housing

61%

(389)

Community Planning

& Development

4%

(25)

Other/GNMA

2%

(13)

Single Family

21%

(133)

Investigation Recoveries by Program (Total: $498,294,949) Investigation Recoveries by Program (Total: $498,294,949)

Multifamily

0%

($2,439,543)

Community Planning

& Development

1%

($7,137,802)

Public & Indian

Housing

16%

($79,673,692)

Other/GNMA

0%

($185,618)

Single Family

83%

($408,807,294)

Investigation Funds Put to Better Use (Total: $40,844,193) Investigation Funds Put to Better Use (Total: $40,844,193)

Community Planning & Development

3% ($1,309,036)

Multifamily

6%

($2,293,596)

Other/GNMA

0%

($0)

Single Family

41%

($16,562,279) Public & Indian

Housing

50%

($20,679,282)
Acronyms List Acronyms List Acronyms List

ASAC Assistant Special Agent in Charge

BCI Bureau of Criminal Investigation

CDBG Community Development Block Grant

CID Criminal Investigation Division

CJIS Criminal Justice Information Services Division

CPD Office of Community Planning and Development

DOC Department of Commerce

ED Executive Director

FBI Federal Bureau of Investigation

FFMIA Federal Financial Management Improvement Act of 1996

FHA Federal Housing Administration

FHASL Federal Housing Administration Subsidiary Ledger

FHEO Office of Fair Housing and Equal Opportunity

FISMA Federal Information Security Management Act of 2002

FY fiscal year

GAO Government Accountability Office

GNMA Government National Mortgage Association (aka Ginnie Mae)

HAP housing assistance payment

HHS Department of Health and Human Services

HOME Home Investment Partnership

HQS housing quality standards

HUD U.S. Department of Housing and Urban Development

IG Inspector General

IRS Internal Revenue Service

LLG Liability for Loan Guarantee

LLR Loan Loss Reserve

NAHRO National Association of Housing and Redevelopment Officials

NIST National Institute of Standards and Technology

NOFA notice of funding availability

OGC Office of General Counsel

OIG Office of Inspector General

OMB Office of Management and Budget

OND Officer Next Door

OPM Office of Personnel Management

Acronym List ix Acronym List
PFCRA Program Fraud Civil Remedies Act

PHA public housing authority

PIC Public and Indian Housing Information Center

PID Program Integrity Division

PIH Office of Public and Indian Housing

PMA President’s Management Agenda

PRWORA Personal Responsibility and Work Opportunity Reconciliation

Act of 1996

REAC Real Estate Assessment Center

REAP Resource Estimation and Allocation Process

REO real estate owned

RESPA Real Estate Settlement and Procedures Act

RHIIP Rental Housing Integrity Improvement Project

RIGA Regional Inspector General for Audit

SA Special Agent

SAC Special Agent In Charge

SBA Small Business Administration

SID Special Investigations Division

SEMAP Section 8 Management Assistance Program

SSA Social Security Administration

SSN Social Security number

TEAM Total Estimation and Allocation Mechanism

TND Teacher Next Door

UDAG Urban Development Action Grant

UIV Upfront Income Verification

USDA U.S. Department of Agriculture

USPS U.S. Postal Service

Acronym List

Acronym List x
Table of Contents Table of Contents Table of Contents

Chapter 1 - HUD’s Management and Performance Challenges 1

The HUD Office of Inspector General 2

Major Issues Facing HUD 2

Chapter 2 - HUD’s Single Family Housing Programs 9

Audits 10

Investigations 21

Chapter 3 - HUD’s Public and Indian Housing Programs 43

Audits 44

Investigations 55

Fugitive Felon Initiative 68

Chapter 4 - HUD’s Multifamily Housing Programs 71

Audits 72

Investigations 76

Chapter 5 - HUD’s Community Planning and Development Programs 83

Audits 84

Investigations 86

Chapter 6 - Other Significant Audits and Investigations/OIG Hotline 95

Audits 96

Investigations 101

OIG Hotline 104

Chapter 7 - Outreach Efforts 107

Chapter 8 - Review of Policy Directives 115

Proposed Rules 116

Mortgagee Letter 120

Chapter 9 - Audit Resolution 123

Delayed Actions 124

Significant Revised Management Actions 125

Significant Management Decisions with Which OIG Disagrees 128

Federal Financial Management Improvement Act of 1996 130

Appendix 1 - Audit Reports Issued 131

Appendix 2 - Tables 137

Table A - Audit Reports Issued Prior to Start Period with No Management

Decision at 03/31/2005 138

Table B - Significant Audit Reports Described in Previous Semiannual Reports

Where Final Action Had Not Been Completed as of 03/31/2005 139

Table C - Inspector General Issued Reports with Questioned and Unsupported

Costs at 03/31/2005 149

Table D - Inspector General Issued Reports with Recommendations that Funds

Be Put to Better Use at 03/31/2005 150

Table of Contents xi Table of Contents
Reporting Requirements Reporting Requirements Reporting Requirements

The specific reporting requirements as prescribed by the Inspector General Act of

1978, as amended by the Inspector General Act of 1988, are listed below:

Source/Requirement Pages

Section 4(a)(2)-review of existing and proposed legislation and regulations. 115-122

Section 5(a)(1)-description of significant problems, abuses, and 1-105, 123-130

deficiencies relating to the administration of programs and operations

of the Department.

Section 5(a)(2)-description of recommendations for corrective action with 9-105

respect to significant problems, abuses, and deficiencies.

Section 5(a)(3)-identification of each significant recommendation Appendix 2, Table B

described in previous semiannual report on which corrective action

has not been completed.

Section 5(a)(4)-summary of matters referred to prosecutive authorities 9-105

and the prosecutions and convictions that have resulted.

Section 5(a)(5)-summary of reports made on instances where information No Instances

or assistance was unreasonably refused or not provided, as required by

Section 6(b)(2) of the Act.

Section 5(a)(6)-listing of each audit report completed during the Appendix 1

reporting period, and for each report, where applicable, the total

dollar value of questioned and unsupported costs and the dollar value of

recommendations that funds be put to better use.

Section 5(a)(7)-summary of each particularly significant report. 9-105

reports and the total dollar value of questioned and unsupported

costs.

Section 5(a)(8)-statistical tables showing the total number of Appendix 2, Table C

audit reports and the total dollar value of questioned and

unsupported costs.

Section 5(a)(9)-statistical tables showing the total number of audit Appendix 2, Table D

reports and the dollar value of recommendations that funds be put

to better use by management.

Section 5(a)(10)-summary of each audit report issued before the Appendix 2, Table A

commencement of the reporting period for which no management

decision had been made by the end of the period.

Section 5(a)(11)-a description and explanation of the reasons for 125-128

any significant revised management decisions made during the

reporting period.

Section 5(a)(12)-information concerning any significant management 128-130

decision with which the Inspector General is in disagreement.

Section 5(a)(13)-the information described under section 05(b) of the 130

Federal Financial Management Improvement Act of 1996.

Reporting Requirements

Reporting Requirements xii
Chapter 1

HUD’s Management

and Performance Challenges
The HUD Office of The HUD Office of The HUD Office of

Inspector General Inspector General Inspector General

T he U.S. Department of

 Housing and Urban Development (HUD) Inspector General is one of

the original 12 Inspectors General

authorized under the Inspector General

Act of 1978. Over the years, we have forged

a strong alliance with HUD personnel

in recommending ways to improve

departmental operations and in

prosecuting program abuses. We strive

to make a difference in HUD’s performance

and accountability. We are committed to our

statutory mission of detecting and

preventing fraud, waste, and abuse and

promoting the effectiveness and efficiency

of government operations. While

organizationally we are located within the

Department, we operate independently with

separate budgetary authority. This

independence allows for clear and

objective reporting to the Secretary and the

Congress. Our activities seek to

 Promote efficiency and effectiveness in

programs and operations;

 Detect and deter fraud and abuse;

 Investigate allegations of misconduct

by HUD employees; and

 Review and make recommendations

regarding existing and proposed legislation and regulations affecting HUD.

The Executive Office and the Offices

of Audit, Investigation, Counsel, and

Management and Policy are located in

Headquarters. Also, the Offices of Audit

and Investigation have staff located in eight

regions and numerous field offices.

Major Issues Facing HUD Major Issues Facing HUD

The Department’s primary mission is

to expand housing opportunities for

American families seeking to better their

quality of life. HUD seeks to accomplish this

through a wide variety of housing and

community development grant, subsidy,

and loan programs. HUD’s budget

approximates $31 billion annually.

Additionally, HUD assists families in

obtaining housing by providing Federal

Housing Administration (FHA) mortgage

insurance for single-family and

multifamily properties. At the end of fiscal

year (FY) 2004, FHA’s outstanding

mortgage insurance portfolio was about

$469 billion. Ginnie Mae, through its

mortgage-backed securities program, gives

issuers access to capital markets through

the pooling of federally insured loans.

With about 9,100 staff nationwide,

HUD relies upon numerous partners for the

performance and integrity of a large

number of diverse programs. Among these

partners are hundreds of cities that

manage HUD’s Community Development

Block Grant (CDBG) funds, hundreds of

public housing authorities that manage

assisted housing funds, thousands of HUDapproved lenders that originate and

service FHA-insured loans, and hundreds

of Ginnie Mae mortgage-backed securities

issuers that provide mortgage capital.

Achieving HUD’s mission continues to

be an ambitious challenge for its limited

staff, given the agency’s many distinct

programs. HUD’s management problems

have for years kept it on the Government

Accountability Office’s (GAO) list of

agencies with high-risk programs. HUD’s

management team, GAO, and the Office

of Inspector General (OIG) share the view

Management & Performance Challenges

HUD’s Management and Performance Challnges 2
that improvements in human capital,

acquisitions, and information systems are

essential in removing HUD from its

high-risk designation. More specifically,

HUD must focus these improvements on

rental housing assistance programs and

single-family housing mortgage insurance

programs, two areas where financial and

programmatic exposure is the greatest.

That HUD’s reported management

challenges are included as part of the

President’s Management Agenda (PMA)

is indicative of HUD’s important role in

the Federal sector. HUD’s current

Administration places a high priority on

correcting those weaknesses that put two

HUD program areas on GAO’s high-risk

list.

As of the end of the second quarter of

2005, HUD’s PMA scoring status showed

that the eight initiatives applicable to HUD

remained unchanged with a total of three

“yellow” and five “red” baseline goal

scores. Based upon a comprehensive set of

standards, an agency is “green” if it meets

all of the standards for success, “yellow”

if it has achieved some but not all of the

criteria, and “red” if it has even one of the

number of serious flaws. The five red

baseline scores reported are Competitive

Sourcing, Improved Financial Performance,

E-Government, Budget and Performance

Integration, and HUD Management and

Performance. HUD’s baseline score for

Improved Financial Performance remains

at red because of material weaknesses and

a disclaimer of opinion received on HUD’s

FY 2004 consolidated financial statements.

Although HUD’s baseline scores

remained unchanged for the second

quarter, actions completed during the

quarter resulted in improved progress

scores. HUD’s third quarter 2005 goal is to

complete all planned quarterly actions,

attain green progress scores for all eight

initiatives, and improve goal scores for

seven of the eight initiatives.

Each year in accordance with the

Reports Consolidation Act of 2000, HUDOIG is required to submit a statement to

the Secretary with a summary assessment

of the most serious challenges facing the

Department. We submitted our latest

assessment on October 19, 2004. These

reported challenges are the continued focus

of our audit and investigative effort. HUD

is working to address these challenges and

in some instances, has made progress in

correcting them. The Department’s

management challenges and current efforts

to address these challenges are as follows.

Departmentwide Organizational

Changes. For more than a decade, the

Department has struggled with

organizational and management changes

in an effort to streamline its operations.

These changes were necessary as HUD tried

to manage more programs and larger

budgets with fewer staff. The former HUD

Administration realigned the Department

along functional lines, separating outreach

from program administration. Also, it

placed greater reliance on automated tools,

processing centers, contracted services, and

HUD partners to administer its programs.

As HUD implemented these realignments,

many employees were assigned new

duties and responsibilities, and many new

employees were hired. The disruptions

caused by these sweeping changes

compounded problems in effectively

managing HUD operations.

The current Administration has made

several changes to reduce organizational

layers and improve operations. The

Departmental Enforcement Center was

placed under the direction of the General

HUD’s Management and Performance Challnges 3 Management & Performance Challenges
Counsel to consolidate legal resources in

support of a strong program enforcement

effort. The Real Estate Assessment Center

(REAC) was placed under the direction of

the Assistant Secretary for Public and

Indian Housing to improve REAC’s

working relationships with program staff

and program partners. In addition, the

return to the former regional and field

office structure was implemented to give

HUD’s field operations greater operational

control over the administrative budget

resources they need to pursue their

operating and program goals and to

strengthen the local focus on workload

management to meet national performance

goals.

Improving the efficiency and

effectiveness of HUD’s programs through

reorganization efforts requires the

Department, in part, to sustain operational

consistency in completed reforms. To

better ensure operational consistency, it is

essential that HUD execute its Strategic

Five-Year Human Capital Management

Plan. The first goal in HUD’s Plan,

developed in 2003, is to make HUD a

mission-focused agency. Getting the right

number of employees in the right location

with the right skill mix will improve the

quality of HUD programs and services by

addressing management challenges,

reducing program risks, and improving

program performance. The relationship

between office functions and

departmentwide goals is also reinforced

through the Plan’s implementation. HUD’s

Plan recognizes that human resources

activities must be aligned with agency goals

to clearly, efficiently, and effectively

support and enable HUD to achieve its

mission.

Financial Management Systems.

HUD’s inventory of automated systems lists

45 information systems as “official

financial systems.” Another 44 information

systems are listed as “other systems

performing financial functions.” These

systems, some of which are very old, are

not all operated on the same platform. Since

FY 1991, we have annually reported that

the lack of an integrated financial system

in compliance with all Federal Financial

Management System (FFMS) requirements

is a material weakness in internal controls.

While some progress has been made, a

number of long-standing deficiencies

remain.

For the past several years, our

financial audits also reported weaknesses

in internal controls and security over

HUD’s general data processing operations

and specific applications. The effect of these

weaknesses is that HUD cannot be

reasonably assured that system information

will remain confidential, protected from

loss, and available to those who need it

without interruption.

The weaknesses noted in our FY 2004

Consolidated Financial Audit relate to the

need to

 Comply with FFMS requirements,

including the need to enhance FHA’s

information technology systems to

more effectively support its business

and budget processes;

 Strengthen controls over HUD’s

computing environment;

 Improve personnel security practices

for access to the Department’s

critical financial systems; and

Management & Performance Challenges

HUD’s Management and Performance Challnges 4
 Improve the systems and processes

for reviewing obligation balances to

ensure that unneeded amounts are

deobligated in a timely manner.

HUD’s most significant system

deficiencies have existed in FHA, which

continues to conduct some day-to-day

business operations with legacy-based

systems, limiting its ability to integrate its

financial processing environment. During

FY 2003, FHA implemented the Federal

Housing Administration Subsidiary Ledger

(FHASL) financial system. This system

automated many previously manual

processes used to (1) consolidate the

accounting data received from the various

FHA operational legacy systems and (2)

prepare summary entries for posting to

the FHASL. FHA continues to make

progress in its overall compliance with

FFMS requirements. In FY 2004, FHA

completed the implementation of its core

financial system implementation with the

addition of cash management, funds

control, and contract modules. By FY 2007,

FHA plans to fully integrate program

operations with its core financial system,

eliminating some legacy systems and

reengineering others to implement

budgetary controls at the source, further

reducing the need for manual processing,

and improving financial operations.

Human Capital Management. For

many years, one of the Department’s

major challenges has been to effectively

manage its limited staff resources to

accomplish its primary mission. In recent

years, the Department has contracted out

numerous functions essential to the

accomplishment of its overall mission, in

part due to staffing issues. Many of the

weaknesses facing HUD, particularly

those concerning HUD’s oversight of

program recipients, are exacerbated

by HUD’s resource management

shortcomings. Accordingly, we consider it

critical for the Department to address these

shortcomings through the successful

completion of ongoing plans. To operate

effectively and hold individuals responsible

for performance, HUD needs to know that

it has the right number of staff with the

proper skills in the right positions.

To address its human capital needs

and respond to the PMA, HUD developed

a comprehensive Five-Year Strategic

Human Capital Management Plan that

identifies three strategic goals for human

capital:

 Mission-focused agency to align

employees and work to support

HUD’s mission;

 High quality workforce which

recruits, develops, manages, and

retains a diverse workforce; and

 Effective succession planning to

ensure retirees over the next 5 years

are succeeded by qualified employees

The human capital management

plan is the Department’s primary tool

for advancing its human capital

transformation. The plan is reviewed

annually, and updates or revisions

are issued as needed to support

implementation activities. In line with its

strategic plan, HUD has increased its

focus on human capital management

through a variety of initiatives.

To address staffing imbalances and

other human capital challenges, the

Department uses the Resource Estimation

and Allocation Process (REAP) and the

Total Estimation and Allocation

Mechanism (TEAM). REAP and TEAM are

Management & Performance Challenges

HUD’s Management and Performance Challnges 5
HUD’s resource management tools by

which the Department identifies, justifies,

analyzes, and makes a recommendation

regarding the optimal level of resources

necessary for effective and efficient

program administration and management.

REAP obtains crucial time and workload

data necessary for viable budget estimation

and execution and to meet the

Department’s Government Performance

and Results Act requirements.

In June 2003, HUD awarded a

contract to conduct a workforce analysis

for the Department. The purposes of the

workforce analysis studies was to establish

future workforce needs, compare them

with current capabilities, determine skill

gaps, and develop human capital

strategies and actions to close the gaps. In

September 2004, the contractor completed

the analysis of HUD’s workforce and

provided HUD a consolidated report with

5-year work force projections for planning

purposes. The contractor’s analysis and

report focused on the Department’s core

business functions, beginning with the

Office of Public and Indian Housing (PIH),

and then the Office of Community

Planning and Development (CPD), the

Office of Housing, and the Office of Fair

Housing and Equal Opportunity (FHEO).

HUD is currently in the process of

integrating REAP and workforce analysis

so that they complement one another and

provide strategic workforce planning

direction with the objective of comparing

priority needs and making workforce

management decisions that best serve the

Department’s mission.

FHA Single-Family Origination. HUD

manages about $400 billion in singlefamily insured mortgages. Effective

management of this high-risk portfolio

represents a continuing challenge for

the Department. The PMA has

committed HUD to tackling long-standing

management problems that expose FHA

homebuyers to fraudulent practices. While

GAO and the Inspector General have

reported improved monitoring of lender underwriting, default tracking, and

expanded loss mitigation to help reduce

mortgage foreclosures, HUD needs to

further strengthen lender accountability

through policy revisions and take strong

enforcement actions against program abusers that victimize first-time and

minority homebuyers.

In support of HUD and the PMA,

OIG’s Strategic Plan for FY 2005 gives

priority to detecting and preventing fraud

in FHA mortgage lending through targeted

audits and investigations. Our audits

target lenders with high default rates. Our

detailed testing focuses on mortgage loans

that have defaulted and resulted in FHA

insurance losses. Results from these audits

have noted significant lender underwriting

deficiencies, prohibited late endorsed

loans, inadequate quality control, and

other operational irregularities. Our

recommendations have sought monetary

recoveries through loan indemnifications

exceeding $38 million, loss reimbursements

of $2.4 million, and appropriate civil

remedies. During the current semi annual

reporting period, we completed 19

external audits of FHA-approved mortgage

lenders as well as one internal audit of

single-family program activities. We also

started 31 additional audits of FHA

lenders during the period. Additionally, our

investigative workload in single-family

fraud prevention continues to grow

dramatically. During the current

semiannual period, OIG opened 133

investigation cases and closed 208 cases in

the single-family housing program area,

Management & Performance Challenges

HUD’s Management and Performance Challnges 6
resulting in 214 indictments, 213 arrests,

and 108 convictions/pleas/pretrial

diversions. The audit of FHA’s FY 2004

financial statements also reported a need

to place more emphasis on monitoring

lender underwriting and continuing to

improve single-family early warning and

loss prevention. OIG has tailored its

audit and investigation techniques to

complement this need, support HUD

management improvements, and provide

an added deterrence to mortgage fraud.

We developed a comprehensive training

course on auditing single-family lenders

and conducting single-family fraud

investigations. To date, 127 auditors have

completed the single-family lender

training course.

Public and Assisted Housing Program

Administration. HUD provides housing

assistance funds under various grant and

subsidy programs to public housing

agencies and multifamily project owners.

These intermediaries, in turn, provide

housing assistance to benefit primarily lowincome households. PIH and the Office of

Housing monitor these intermediaries’

administration of the assisted housing

programs.

Accurate and timely information

about households participating in HUD

housing programs is necessary to allow

HUD to monitor the effectiveness of the

program, assess agency compliance with

regulations, and analyze the impacts of

proposed program changes. The level of

reporting by agencies is a criterion in both

the Public Housing Assessment System and

the Section 8 Management Assistance

Program (SEMAP) assessment systems for

housing agencies. HUD’s goal is to obtain

100 percent reporting of tenant data into

the system.

Material weaknesses in the

monitoring of housing agencies and

assisted multifamily projects continue to

present obstacles in achieving the intended

statutory purposes. These weaknesses have

been reported for a number of years in our

annual audits of HUD’s financial

statements.

A material weakness reported in FY

2004 concerns a long-standing concern

about the calculation of housing assistance

to families. A 2000 HUD study concluded

that 60 percent of all rent and subsidy

calculations performed by intermediaries

contained overpayment or underpayment

errors totaling more than $3.2 billion. In

2003, an update to this study estimated a

gross error payment of $1.6 billion.

Although still a large amount, this

represents a 50-percent reduction from the

error estimate completed in 2000. The

reduction is attributed to enhanced

program guidance, training, oversight, and

enforcement, as well as improved income

verification efforts, voluntary compliance

by tenants due to promotion of the issue,

an improved computer matching process,

and an improved methodology for

reviewing income discrepancies. HUD is

also validating tenant-reported income

against other Federal sources and

considering program simplification options.

In addition to these efforts, HUD needs

to enforce the requirement that

intermediaries report data elements in the

management information system.

Sanctions need to be applied if

intermediaries do not comply with this

requirement.

Paralleling HUD efforts, our

investigative and audit focus is

concentrating on fraudulent practices and

the lack of compliance with the Section 8

Management & Performance Challenges

HUD’s Management and Performance Challnges 7
program statute and requirements. To

comply with the request from Congress,

OIG plans to conduct 20 external audits of

the Section 8 Housing Choice Voucher

program during FY 2005 and has hired an

additional appraiser to assist in evaluating

housing quality. In total, these external

audits will address whether the housing

agencies are correctly calculating subsidy

amounts, correctly determining family

income, complying with housing quality

standards, fully using authorized vouchers,

and implementing controls to prevent

duplicative and fraudulent housing

assistance payments.

  

Management & Performance Challenges

HUD’s Management and Performance Challnges 8
Chapter 2

HUD’s Single-Family

Housing Programs
T he Federal Housing

 Administration’s (FHA)

single-family programs provide mortgage

insurance to mortgage lenders that, in turn,

provide financing to enable individuals

and families to purchase new or existing

homes or to rehabilitate existing homes.

Audits

During this reporting period, the

Office of Inspector General (OIG) issued 20

reports, 1 internal audit and 19 external

audits, in the single-family housing

program area. These reports disclosed

more than $2.8 million in questioned

costs and about $37.9 million in

recommendations that funds be put to

better use. We reviewed 18 FHA singlefamily mortgage lenders.

Mortgagees and Loan Mortgagees and Loan

Correspondents Correspondents

The U.S. Department of Housing and

Urban Development (HUD)-OIG audited

RBC Mortgage Company, also known as

Prism Mortgage, Houston, TX, a mortgagee

approved to originate, underwrite, and

submit insurance endorsement requests

through HUD’s single-family direct

endorsement process. We selected RBC for

audit because of its high late endorsement

rate. Our audit objective was to

determine whether RBC complied with

HUD’s regulations, procedures, and

instructions in the submission of insurance

endorsement requests.

RBC and its contractor submitted 170

late requests for insurance endorsement out

of 5,123 loans tested. The loans were either

delinquent or otherwise did not meet

HUD’s timely payment requirements. RBC

and/or its contractor also incorrectly

certified that mortgage and escrow

accounts were current. RBC lacked

adequate procedures and controls to ensure

that it and the contractor’s employees

followed HUD’s requirements regarding

late requests for insurance endorsement.

The improperly submitted loans increased

the risk to the FHA insurance fund.

We recommended that RBC indemnify

HUD for any future losses on 138 loans with

a total value of more than $16.2 million.

We also recommended that RBC reimburse

HUD approximately $26,000 for the actual

loss on a case in which the associated

property was already sold and reimburse

HUD for any future losses from a claim of

more than $24,000 paid on one insured

The chart cost figures in this chapter represent the actual monetary benefits for all reports issued during

this semiannual period. The monetary benefits shown in the Profile of Performance represent only those

reports with management decisions reached during this semiannual period. Because there is a time lag

between report issuance and management decisions, the two totals will not agree.

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 10

Chart 2.1: Single Family Housing Chart 2.1: Single Family Housing

Reports Issued

1

19

 Internal Reports External Reports

 Internal Reports External Reports

 Questioned Costs Funds Put to Better Use

Chart 2.2: Single Family Housing Dollars Chart 2.2: Single Family Housing Dollars

40,000,000

30,000,000

20,000,000

10,000,000

0

0
loan with a total mortgage value of

approximately $229,000 once the

associated property is sold. We

recommended that RBC establish and

implement an adequate quality control

plan. Further, we recommended that HUD

take appropriate administrative action

against the employees, contractors, and

principals of RBC, including remedies

under the Program Fraud Civil Remedies

Act (PFCRA). (Audit Report: 2005-CH1007)

We audited American Property

Financial (American), a loan correspondent

approved to originate FHA mortgage loans

through HUD’s single-family direct

endorsement process in San Antonio, TX.

American originated 83 FHA loans

between February 1, 2002, and January 31,

2004. As of February 23, 2004, 14 of the 83

loans were in default status. The 14 loans

were all underwritten by Synergy

Mortgage, a loan sponsor for American.

Our audit objectives were to determine

whether American (1) complied with

HUD’s regulations, procedures, and

instructions in the origination of mortgages

and (2) implemented a quality control plan

according to HUD’s requirements.

American failed to originate loans in

accordance with HUD requirements.

American used gift funds to pay delinquent

debts, rolled delinquent debts into

mortgage loans, and submitted loans for

unqualified applicants. American used

inflated appraisals to increase the sales

price to accommodate incentives to

purchase. All 39 loans reviewed involved

the same underwriter, and 35 of the 39

involved the same loan officer. American

received more than $185,000 from

originating the 39 loans. As of February 23,

2004, 14 of the loans totaling almost $1.4

million were in default status. The

deficiencies resulted from American’s

failure to follow HUD’s requirements, its

failure to implement an adequate quality

control plan, and its lack of supervision

over its loan officers. These deficiencies

contributed to the high default rate, putting

at risk 34 loans totaling more than $3.3

million in insured loans.

We recommended that Synergy

Mortgage, Inc., American’s sponsor on the

loans, indemnify/reimburse HUD against

losses on the 34 loans valued at more than

$3.3 million and reduce 20 mortgage

balances approximately $165,000 for

incentives to buy disguised as gift funds.

Additionally, we recommended that

American establish controls to ensure that

personnel are knowledgeable of HUD

procedures and supervision is adequate to

maintain an effective operation and that

appropriate administrative action is taken.

(Audit Report: 2005-FW-1004)

We completed an audit of First United

Mortgage Company, Inc., a mortgagee

located in Cranford, NJ. The objectives of

the audit were to determine whether First

United (1) originated and underwrote

FHA-insured loans in accordance with

HUD’s requirements and (2) designed and

implemented a quality control plan. The

review generally covered the period

between February 1, 2002, and January 31,

2004, and involved a review of 25 loans

with mortgage amounts totaling more than

$3 million.

We found 23 of the 25 loans had at

least one underwriting deficiency, and First

United charged borrowers ineligible

and/or unsupported fees in 24 cases.

In addition, we concluded that First

United had not implemented its quality

control plan in accordance with HUD

requirements.

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 11
We recommended that HUD request

First United to (1) indemnify 20 of the 25

loans valued at more than $2.4 million with

significant underwriting deficiencies, (2)

reimburse borrowers for ineligible and

unsupported fees totaling more than

$6,000, and (3) provide HUD a corrective

action plan containing assurances that all

guidelines pertaining to underwriting and

quality controls will be followed. (Audit

Report: 2005-NY-1002)

We completed a limited review of

Wachovia Mortgage Corporation

(Wachovia), a direct endorsement

mortgagee. The review was performed on

one of the mortgagee’s branch offices in

Scottsdale, AZ. We selected this branch

office for review based on the results of a

previous OIG audit that identified the use

of false credit and employment documents

by a loan correspondent of Wachovia. The

review objective was to determine whether

there were fraud indicators in a sample of

27 mortgage loan files underwritten by

Wachovia and if so, whether these

indicators were identified and resolved

during Wachovia’s underwriting process.

We found Wachovia failed to identify

and/or follow up on indicators of false

credit and/or employment documents

during the underwriting process for all 27

loans totaling approximately $2.9 million.

As a result, loans were approved based on

false information, causing the FHA

insurance fund to assume unnecessary

risks. The report recommends that

Wachovia indemnify/reimburse HUD for

any past or future losses on 25 of the 27

loans valued at more than $2.4 million.

(Audit Report: 2005-LA-1803)

In Towson, MD, we audited the

Towson branch of Peoples Mortgage

Corporation, a branch approved to

originate FHA single-family mortgage

loans, because it had a high default rate.

Our objectives were to determine whether

Peoples complied with HUD’s regulations,

procedures, and instructions in the

origination of FHA loans and whether

Peoples’ quality control plan met HUD

requirements.

Peoples’ did not originate all FHA

loans in accordance with HUD’s loan

origination requirements. Of the 26 loans

we selected for review, Peoples did not fully

comply with FHA requirements for 14 of

the loans valued at more than $2.4 million.

Peoples did not exercise due diligence in

the review of assets and gifts or resolve

signature, Social Security number (SSN),

and employment inconsistencies. These

deficiencies were caused by a lack of

management oversight and contributed to

an increased risk to the FHA insurance

fund. Further, Peoples’ quality control plan

and the corresponding contract for quality

control reviews did not contain

requirements to identify patterns of early

defaults or to perform onsite reviews at

branch locations. After these matters were

brought to its attention, Peoples corrected

its loan origination process and its quality

assurance plan.

We recommended that Peoples take

immediate action to correct operational

deficiencies and indemnify HUD for 14

FHA loans valued at more than $2.4

million. (Audit Report: 2005-PH-1006)

We audited Wells Fargo Bank NA’s

Fife Branch Office, Fife, WA, because of

the high rate of claims on defaulting

FHA-insured single-family loans approved

by this branch. Our audit objective was to

determine whether Wells Fargo-Fife acted

in a prudent manner and complied with

HUD regulations, procedures, and

instructions in its approval of the

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 12
FHA-insured single-family mortgages

selected for review and whether the

mortgagee’s quality control plan met HUD

requirements.

Wells Fargo-Fife did not always

process and approve the defaulting

FHA-insured loans in accordance with

HUD regulations and guidance. Of the 20

loans reviewed, Wells Fargo-Fife approved

13 loans totaling more than $1.7 million,

which did not meet HUD underwriting

requirements. The underwriting

deficiencies included approving loans with

unsupported income, unsupported assets,

underreported liabilities, unexplained

derogatory credit information, inadequate

qualifying ratios, and unclear and/or

inadequate documentation of important

file discrepancies. We determined that

Wells Fargo-Fife’s quality control plan

complied with HUD requirements.

We recommended that HUD take

appropriate administrative action up to

and including recovery of losses on more

than $667,000 in paid claims and

indemnification against future losses on

loans totaling more than $882,000. (Audit

Report: 2005-SE-1004)

We audited Pan American Financial

Corporation, a direct endorsement lender,

in Guaynabo, PR. We selected Pan

American because of its high default rate.

Pan American did not follow HUD

requirements when originating and

approving 17 FHA-insured loans totaling

more than $2.7 million. In 10 loans, Pan

American did not exercise the care

expected of a prudent lender in the analysis

of the borrower’s assets, earnings, and

debts. Pan American also approved seven

loans that did not comply with HUD’s

self-sufficiency requirements and were

overinsured by almost $210,000. The

deficiencies occurred because Pan

American did not establish and implement

adequate controls to ensure its employees

followed HUD requirements when

processing and underwriting loans. In

addition, Pan American did not implement

procedures or controls to ensure all

FHA-insured loans that default within 6

months of closing undergo a loan

origination quality control review. We

attribute this deficiency to Pan American’s

disregard of HUD requirements and

instructions. The deficiencies contributed

to Pan American’s high default rate and

increased the risk to the FHA insurance

fund. HUD has no assurance of the

accuracy, validity, and completeness of Pan

American’s loan origination operations.

We recommended that HUD require

Pan American to indemnify almost $1.4

million against future losses on nine loans

and pay down the mortgages of the several

overinsured loans by almost $210,000. We

further recommended that HUD take

appropriate monitoring measures to ensure

Pan American establishes and implements

appropriate controls so that its employees

follow HUD requirements when processing

and underwriting loans. Finally, HUD

should require Pan American to take the

needed action to ensure the required quality

control plan reviews are conducted. (Audit

Report: 2005-AT-1005)

In Miami, FL, we audited Interstate

Financial Mortgage Group Corporation.

Interstate is a direct endorsement lender

approved by HUD to originate and approve

FHA-insured mortgages. We selected

Interstate for review because of risk factors

associated with defaulted loans. Our audit

objectives were to determine whether

Interstate (1) complied with HUD

regulations, procedures, and instructions

in the origination and underwriting of

FHA-insured single-family mortgages and

(2) implemented its quality control plan as

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 13
required. We reviewed a sample of 18 loans

to accomplish our objectives.

Interstate did not follow HUD

requirements when originating and

approving 15 loans totaling more than

$1.5 million. All 15 loans contained

underwriting deficiencies that, taken as

a whole, should have led a prudent

person to not approve the loans.

Interstate approved the loans based on

inaccurate employment income and gift

documentation and other deficiencies. This

occurred because Interstate did not exercise

due care in originating and underwriting

loans, primarily by not clarifying

inconsistencies in the loan files or

adequately following up to verify borrower

income and employment histories.

Interstate also improperly allowed

independent loan officers to originate

loans and maintained no supporting

documentation to ensure HUD that

interest rates, loan discount points, and

other fees were appropriately charged.

Further, Interstate did not fully implement

its quality control plan, and the quality

control plan was incomplete. We attribute

all these deficiencies to Interstate’s

disregard of HUD requirements and

instructions. As a result, HUD has no

assurance of the accuracy, validity, and

completeness of Interstate’s loan

origination and underwriting operations,

and there is increased risk to the FHA

insurance fund.

We recommended that Interstate (1)

indemnify HUD against future losses on

10 loans totaling more than $1 million, (2)

reimburse HUD for a loss already incurred

of almost $37,000 on one property, and (3)

reimburse HUD for a loss, if applicable, on

another property for which HUD paid a

claim of more than $110,000. We also

recommended that HUD require Interstate

to stop using independent loan officers to

originate FHA loans and maintain

documentation to justify interest rates, loan

discount points, or other fees charged.

Further, we recommended that HUD take

appropriate measures to ensure Interstate

conducts required quality control reviews,

corrective action is taken and documented

for all reported deficiencies, and the written

quality control plan complies with HUD

requirements. Finally, we recommended

that HUD take administrative action as

appropriate, up to and including civil

monetary penalties. (Audit Report: 2005-

AT-1007)

OIG audited Trust America Mortgage,

Inc., in Cape Coral, FL. Trust America is

a direct endorsement lender approved

by HUD to originate and approve

FHA-insured single-family mortgages.

We selected Trust America for review

because of risk factors associated with

defaulted loans.

The audit objectives were to determine

whether Trust America (1) complied with

HUD regulations, procedures, and

instructions in the origination and

underwriting of FHA-insured single-family

mortgages and (2) implemented its quality

control plan as required. We reviewed a

sample of 17 FHA-insured loans.

Trust America did not follow HUD

requirements when originating and

approving 16 loans totaling more than $1.9

million. All 16 loans had underwriting

deficiencies that, taken as a whole, should

have led a prudent lender to not approve

the loan. Trust America approved the loans

based on inadequate asset and debt

verification and other deficiencies. The

deficiencies occurred because Trust

America failed to exercise due care in

originating and underwriting loans,

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 14
primarily by not clarifying inconsistencies

in the loan files. These deficiencies

increased the risk to the FHA insurance

fund.

Trust America did not fully implement

its quality control plan. It did not

conduct the required number of quality

control reviews, including reviews of

early-defaulted loans and rejected loan

applications. Also, Trust America’s quality

control plan was incomplete. We attribute

these deficiencies to Trust America’s

disregard of HUD requirements and

instructions and reliance on an

independent contractor to fulfill its

responsibilities. As a result, HUD has

limited assurance of the accuracy, validity,

and completeness of Trust America’s loan

origination and underwriting operations.

We recommended that Trust America

(1) indemnify HUD against future losses

on eight loans totaling more than $977,000,

(2) reimburse HUD for a loss already

incurred of approximately $17,000 on one

property, and (3) reimburse HUD for a

loss, if applicable, on another property for

which HUD paid a claim of $113,000. We

further recommended that HUD take

appropriate measures to ensure Trust

America conducts required quality control

reviews and the written quality control

plan complies with HUD requirements.

Finally, we recommended that HUD take

administrative action as appropriate, up to

and including civil monetary penalties.

(Audit Report: 2005-AT-1008)

OIG reviewed Leader Mortgage

Company, a direct endorsement lender

located in Lenexa, KS, because its default

rate has been significantly higher than

HUD’s Kansas City average over the past

3 years. Our audit objectives were to

determine whether Leader Mortgage

properly originated FHA loans and to

determine whether it properly developed

and implemented a quality control plan.

Leader Mortgage did not follow HUD

requirements when processing and

submitting loans for FHA insurance

endorsement. It improperly originated

seven of the 23 loans reviewed and charged

unallowable costs. These seven loans

contained deficiencies that affected the

insurability of the loans, including

unsupported assets, underreported

liabilities, unsupported income, and

derogatory credit. As a result, the insurance

fund was placed at risk for more than

$911,000. Further, Leader Mortgage’s

quality control plan lacked many required

elements, and Leader did not ensure that

it obtained quality control reviews that met

HUD requirements. Leader Mortgage also

did not take prompt corrective action

when quality control reports identified

material deficiencies. As a result, HUD

lacks assurance that Leader Mortgage is

able to ensure the accuracy, validity, and

completeness of its loan origination

operations.

We recommended that appropriate

administrative action be taken against

Leader Mortgage based on the information

contained in our report. This action should,

at a minimum, include indemnification for

the seven actively insured loans valued at

more than $911,000, reimbursement of

appropriate parties for unallowable costs

charged to borrowers totaling more than

$3,000, and verification that Leader

implements controls to ensure it follows

HUD’s quality control requirements. (Audit

Report: 2005-KC-1003)

In Philadelphia, PA, we audited the

Philadelphia branch of Fleet National

Bank, a direct endorsement lender

approved to originate FHA single-family

mortgage loans. We selected Fleet for audit

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 15
OIG audited Washington Mutual

Bank, a direct endorsement mortgagee in

Downers Grove, IL. The audit was

conducted because we identified a high

number of loans with overinsured FHA

loan amounts and invalid borrowers’ SSNs.

The audit objectives were to determine

whether Washington Mutual (1) exercised

due diligence in resolving or following up

on warnings regarding borrowers’ SSNs

and (2) funded FHA-insured loans without

exceeding HUD’s maximum insurable

limits.

Washington Mutual Bank did not

identify and follow up on or resolve

warnings on borrowers’ SSNs for four of

the 22 loans reviewed. We reviewed 22

of the 94 FHA-insured loans that

Washington Mutual underwrote from

October 2000 through September 2003. We

also found that Washington Mutual funded

79 of the 94 loans above HUD’s maximum

insurable limits. As a result, HUD’s FHA

insurance fund incurred a loss of more than

$62,000 on four loans, and the FHA

insurance fund remains at risk by more

than $393,000 for another 32 loans.

We recommended that Washington

Mutual reimburse HUD almost $44,000 for

the actual loss on one terminated loan in

which the borrower had more than one

SSN as shown on the borrower’s credit

report, indemnify HUD more than

$337,000 against future losses from a

foreclosed property associated with one

loan and two defaulted loans in which the

borrowers had invalid SSNs or an SSN

belonging to a deceased person, buy down

more than $56,000 for the excessive FHA

insurance amounts for the 31 active loans

and one loan with a claim paid, reimburse

HUD approximately $19,000 for the losses

incurred on four loans with overinsured

FHA loan amounts that were already sold

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 16

because it had a high default rate. Our

objectives were to determine whether Fleet

complied with HUD regulations,

procedures, and instructions in the

origination of FHA loans and whether

Fleet’s quality control plan met HUD

requirements.

Fleet’s Philadelphia branch office did

not originate all FHA loans in accordance

with HUD’s loan origination requirements.

Of 20 loans we selected for review, the

branch office violated HUD requirements

for five loans valued at more than $224,000.

Fleet did not exercise due diligence in the

review of assets and income, did not verify

rental history, and approved loans with

excessive debt to income ratios. Fleet also

submitted loans for late endorsement when

the payment histories of the buyer were not

current. We found that seven loans totaling

more than $434,000 were from borrowers

who had delinquent mortgage payments.

In addition, Fleet’s Philadelphia branch

office, contrary to HUD requirements, did

not provide an accessible business

environment for its clients during normal

business hours and did not employ a

branch manager to supervise operations.

Finally, the quality control plan provided

by Fleet did not meet all the requirements

of HUD.

We recommended that HUD take

appropriate administrative action, request

indemnification from Fleet on loans valued

at more than $619,000 that were issued

contrary to HUD’s loan origination

procedures, and require Fleet to repay more

than $39,000 on one loan that went into

default, causing HUD to pay a claim.

Further, since the Philadelphia branch

office has been closed, we recommended

that HUD ensure the branch is removed

from its systems as an approved direct

endorsement lender. (Audit Report: 2005-

PH-1005)
by HUD, and implement procedures and

controls to follow HUD’s requirements

and/or prudent lending practices

regarding warnings about borrowers’ SSNs

and maximum insurable limits.

We also recommended that HUD seek

civil monetary penalties against

Washington Mutual for the deficiencies

cited in this report. (Audit Report: 2005-

CH-1002)

We audited American Mortgage

Express Corporation, doing business as

American Residential Mortgage

Corporation, Mt. Laurel, NJ, to determine

whether it followed acceptable loan

origination procedures. We found

significant underwriting deficiencies in

four of seven loans. American Mortgage

Express underwriters did not properly

evaluate the borrower liabilities, income,

and credit worthiness. The underwriting

deficiencies occurred because American

Mortgage Express did not provide

adequate control and supervision over the

staff, nor did it have adequate internal

procedures in place to prevent the deficient

underwriting from occurring. As a result,

American Mortgage Express approved

loans for borrowers who were not qualified

for FHA-insured mortgages. By approving

these loans, American Mortgage Express

increased HUD’s insurance risk, as three

loans with a total unpaid balance of more

than $307,000 defaulted and the fourth

loan foreclosed with an insurance claim of

almost $104,000.

We recommended that HUD require

American Mortgage Express to indemnify

three loans totaling more than $307,000

and reimburse HUD almost $104,000 in

claims paid for another loan. In addition,

HUD should require American Mortgage

Express to monitor all loan underwriting

functions for compliance with HUD

requirements. (Audit Report: 2005-AT1003)

As a result of a complaint, we

reviewed Prime Mortgage, a nonsupervised

loan correspondent in St. Charles, MO, to

determine whether it provided funds to an

FHA borrower to assist with closing costs.

We found the owner of Prime Mortgage

inappropriately provided funds to two

borrowers just before closing their loans.

For a third loan, Prime Mortgage did not

obtain adequate documentation of the

transfer of gift funds. As a result, HUD

insured three loans that would not have

met the minimum requirements to qualify

for an FHA loan, placing HUD at risk for

loans totaling more than $376,000.

We recommended that HUD take

appropriate administrative action against

Prime Mortgage for its improper actions

and against the sponsors of the three loans

valued at more than $376,000 with

origination deficiencies. We also

recommended that HUD take appropriate

action against Prime Mortgage for

providing funds to FHA borrowers while

making it appear that the funds came from

allowable sources and for providing loans

to borrowers to use as funds to close.

Additionally, if HUD allows Prime

Mortgage to maintain its FHA approval

status, we recommended that HUD verify

that it implements controls that ensure it

follows HUD’s quality control review

requirements. (Audit Report: 2005-KC1001)

OIG reviewed Flagstar Bank FSB, Troy,

MI, a lender approved to originate FHA

mortgage loans through HUD’s single-family

direct endorsement process. We selected

Flagstar for audit because of its high late

endorsement rate in fiscal years 2002 and

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 17
through HUD’s single-family direct

endorsement process. We selected Prestige

for audit because of its high loan default

rate. Our audit objectives were to determine

whether Prestige (1) complied with HUD’s

regulations, procedures, and instructions

in the origination of FHA-insured singlefamily mortgages and (2) implemented a

quality control plan according to HUD’s

requirements.

Prestige did not adequately originate

FHA-insured loans in accordance with

HUD’s requirements. Prestige failed to

exercise due diligence to verify or support

borrowers’ income, sources of funds, and

credit information. In addition, Prestige did

not always ensure that unbiased appraisals

were provided, cash investment

requirements were met, information on

inconsistencies contained in loan

documents were explained or resolved,

and interested third parties were not

handling key documentation. Further,

Prestige charged borrowers for fees that

were unjustified. Additionally, Prestige

failed to adequately implement its quality

control process. It did not always review

early payment defaults, perform quality

control reviews on loans in a timely

manner, formally and consistently

document the actions taken to resolve the

deficiencies found during its reviews, and

perform reviews of its branch office. The

deficiencies stemmed from Prestige’s

unfamiliarity with HUD’s requirements, its

failure to adequately implement its quality

control plan, and its senior management’s

lack of supervision over its employees.

These deficiencies contributed to an

increased risk to the FHA insurance fund.

We recommended that Prestige’s

sponsors indemnify HUD for any future

losses on 25 loans with a total value of more

than $1.8 million. We also recommended

that Prestige repay the overcharges for loan

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 18

2003. Our review objectives were to

determine whether Flagstar complied with

HUD’s regulations, procedures, and

instructions in the submission of insurance

endorsement requests and payment of

upfront mortgage insurance premiums to

HUD.

Flagstar implemented improved

procedures and controls in January 2004

to fully comply with HUD’s requirements

regarding late requests for endorsement

and upfront mortgage insurance

premiums. However, before the controls

were strengthened, Flagstar improperly

submitted two loans for late endorsement.

These two loans increased the risk to the

FHA insurance fund by more than

$251,000. Flagstar’s employees incorrectly

certified that one of the two loans’ escrow

accounts for taxes, hazard insurance, and

mortgage premiums were current when

they were not. Flagstar’s staff was not

adequately trained or was not aware of the

late endorsement processing requirements,

and procedures and controls were

insufficient to ensure timely payment of

upfront mortgage insurance premiums.

We recommended that Flagstar

indemnify HUD for any future losses on

the two loans with a total mortgage value

of more than $251,000. Also, we

recommended that HUD pursue

appropriate remedies under the Program

Fraud Civil Remedies Act against Flagstar

and/or its principals for incorrectly

certifying the escrow accounts for taxes,

hazard insurance, and mortgage

premiums were current for one loan

submitted for FHA insurance endorsement

when the escrow accounts were not

current. (Audit Report: 2005-CH-1006)

We audited Prestige Mortgage Group,

Inc. (Prestige), a loan correspondent

approved to originate FHA mortgage loans
discount points totaling more than $13,000

and establish controls to ensure personnel

are knowledgeable of HUD procedures

and supervision is adequate to maintain an

effective operation. (Audit Report: 2005-

CH-1001)

We audited First Source Financial

USA’s (First Source) Midvale, UT, branch

office. We determined an audit was

warranted based on deficiencies identified

in the areas of loan origination and quality

control during a prior audit.

Our objectives were to determine

whether the mortgagee complied with

HUD regulations, procedures, and

instructions in the origination of insured

loans and whether the mortgagee’s quality

control plan met HUD’s requirements.

First Source’s Midvale branch office

did not comply with HUD regulations,

procedures, and instructions in the

origination of 24 of the 25 loans reviewed.

We found employment information that

was invalid or questionable and/or passed

through the hands of an interested third

party, the selling agent for the transaction.

In addition, contrary to HUD’s

requirements, loans were originated by

nonemployees or independent contractors.

HUD suffered a loss of more than $227,000

on the sale of four of the properties and

paid insurance claims of more than

$183,000 on two of the properties. As of

June 30, 2004, the remaining 18 loans have

a total unpaid insured mortgage balance

of $2.2 million, which represents a

continuing or imminent insurance risk.

First Source has a quality control plan that

complies with HUD requirements.

However, the quality control plan was not

implemented, and related quality control

reviews were not performed at the Midvale

office. The lack of implementation of a

quality control plan has contributed to

higher default and claim rates and,

therefore, unnecessarily high risk to the

FHA insurance fund.

We recommended that HUD take

appropriate administrative actions against

First Source based on the information

contained in this report. (Audit Report:

2005-DE-1001)

Single Family Property Single Family Property

Disposition Program Disposition Program

In response to a congressional and

departmental request, we audited the

Town of Clifton, VA’s participation in

HUD’s Single Family Property Disposition

Program. Our objective was to determine

whether the Town complied with HUD’s

rules and regulations in administering the

sales program. Specifically, we wanted to

determine whether the Town

appropriately participated under the sales

program using the competitive sales

method and properly resold rehabilitated

properties.

The Town of Clifton did not fully

comply with HUD’s rules and regulations

in administering its sales program. The

Town could not adequately support

property rehabilitation costs claimed on the

properties it sold under the program. As a

result, some properties were sold at sales

prices above the amount allowed by HUD.

However, we did find the Town was eligible

to participate under the program using the

competitive sales process and it did meet

the requirements in selling the homes to

income-qualified buyers.

Onsite physical home inspections of 10

properties with the highest dollar repair

costs out of 89 properties purchased and

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 19
sold by the Town of Clifton confirmed that

some of the work itemized on the home

inspection repair invoices had not been

performed. In total, we identified more

than $9,000 in charges for repairs that

were not made to seven homes and thus

were ineligible. Since we found the process

used to identify and pay for repair costs

was neither accurate nor reliable, we also

question more than $205,000 in repair costs

for the 10 homes we inspected.

We recommended that HUD require

the Town of Clifton to schedule an

independent inspection of the 79

remaining homes it has processed under

the discount sales program to verify that

all work was satisfactorily completed. If

work has not been done, the Town should

pay down the homeowners’ mortgage by

the appropriate amount. Additionally,

HUD should review the deficiencies noted

in this report and determine whether the

Town should be reinstated to participate

in the program. Before reinstatement,

HUD should require the Town to set up

controls and procedures that fully

document and verify the claimed net

development costs. (Audit Report: 2005-

PH-1003)

We issued a second report, “Criteria

Governing Local Government Participation

in HUD’s Single Family Property

Disposition Program,” to address internal

control concerns with HUD’s Single

Family Property Disposition Program. Our

report (2005-PH-1003) of the Town of

Clifton, a participant in the sales program,

disclosed that requirements for

government entities may not protect HUD.

The objective of this review was to

determine whether HUD’s criteria

governing a local government entity’s

participation in the sales program

adequately protect HUD’s interests.

We determined HUD’s interests are

not adequately protected. HUD intended

that the sales program be used to benefit

low- to moderate-income individuals. Our

audit of the Town of Clifton found the local

government participated in the sales

program primarily as a means to raise

revenue for the Town. The Town used its

government status to purchase homes and

then contracted a for-profit entity to

manage its program. The Town did not

violate HUD requirements by participating

in this manner; however, HUD never

intended the sales program to be used for

this purpose.

We recommended that HUD

strengthen the established criteria

governing local government entities’

participation under the sales program by

implementing criteria similar to those

under which its nonprofits operate.

(Audit Report: 2005-PH-0001)

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 20
Investigations Investigations Investigations

During this reporting period, OIG

opened 133 investigation cases and closed

208 cases in the single-family housing

program area. Judicial action taken on

these cases during the period included

$408,807,294 in investigative recoveries,

$16,562,279 in funds put to better use,

214 indictments/informations, 108

convictions/pleas/pretrial diversions, 162

administrative actions, 23 civil actions,

1 personnel action, and 213 arrests.

Some of the investigations discussed

in this report were conducted jointly with

Federal, State, and local law enforcement

agencies. The results of our more

significant investigations are described

below.

Loan Origination/PropertyLoan Origination/Property- Loan Origination/PropertyFlipping Schemes Flipping Schemes

In New York, NY, in the U.S. Eastern

District of New York, defendant Michael

Fox, a former loan officer of Mortgage

Lending of America, a private mortgage

lending institution in Long Island, NY, was

sentenced to 1 year and 1 day of

incarceration, 60 months of supervised

release, a $100 assessment, and restitution

in the amount of $45,794,260. From

September 1997 to November 1999,

Michael Fox, while working at Mortgage

Lending of America, fraudulently

originated more than 250 FHA-insured

loans under the HUD 203(K) program to

several not-for-profits, including but not

limited to Family Preservation Center,

Helpline Soul Rescue Ministries, St.

Stephens Baptist Church, St. Stephens

Community Development Corp., St.

Stephens Bible College, Word of Life

Ministries, Word of Life Community

Development Corp., Advance Local

Development Corp., and Federation of

Puerto Rican Organizations. These HUD

203(k) loans were originated from

Mortgage Lending of America, a defunct

mortgage company that was previously

based in Long Island, NY.

Also in this Federal court case,

defendant Howard Finger, owner of real

estate companies called Hazmats Realty

Corp., No Exit Place Realty, and One Exit

Place Realty, was sentenced to 5 years

probation, $19,730,315 in restitution, and

a $100 special assessment. All three

companies flipped properties to Advance

Local Development Corp., a not-for-profit

based in New York City. These HUD 203(k)

loans were originated from Mortgage

Lending of America.

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 21

Chart 2.3: Single Family Recoveries Chart 2.3: Single Family Recoveries

False Statements

46%

Other

1% Loan

Origination

25%

Flipping

28%

Total Recoveries: $408,807,294

Chart 2.4: Single Family Funds Chart 2.4: Single Family Funds

Put to Better Use

Property

Disposition

28%

Other

13%

Loan

Origination

43%

Flipping

Total: $16,562,279 16%
mortgage loans and resulted in losses to

HUD of more than $5 million.

In Kansas City, MO, defendants Brent

Barber, Robert Beckley, and Roderick Criss

were indicted by a Federal grand jury in

the Western District of Missouri on 67

counts, including conspiracy, interstate

transportation of stolen property, money

laundering, and asset forfeiture. The

indictment alleges that the defendants

participated in a property-flipping scheme

that caused 84 victim real estate investors

to purchase 223 properties totaling $15.6

million. The indictment seeks the forfeiture

of $4 million from Barber. The defendants

purchased inexpensive single-family

properties in inner city Kansas City,

obtained fraudulent property appraisals

inflated by tens of thousands of dollars, and

sold them to victim investors. Investors

believed they were buying the properties

at true market value, that they were buying

the properties for no money down, and that

renters, including those receiving Section

8 rental assistance, occupied the properties.

In fact, the properties were often unrented,

uninhabitable, and purchased based on

downpayments provided by the

defendants without the buyers’ knowledge.

Additionally, the defendants falsified

numerous loan application documents,

enabling investors to unknowingly

purchase properties for which they would

otherwise not qualify. The scheme resulted

in significant property foreclosures and

financial losses to investors and lending

institutions.

Also, defendant Peggy J. Ries, formerly

doing business as Appraisals by Peggy,

Raytown, MO, pled guilty in Federal

Court, Western District of Missouri, to

felony charges that she conspired with

others to commit interstate transportation

of stolen property related to her role in a

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 22

In Los Angeles, CA, in Federal Court,

Central District of California, defendant

Christina Antolin, a loan processor for

Edgardo and Danilo Guinto, was

sentenced to imprisonment for 4 months

and placed on probation for 3 years for

violation of two counts of making false

statements and aiding and abetting.

Antolin’s conviction stemmed from her

participation in a single-family “flipping”

and loan origination scheme by assisting

in the preparation of mortgage applications

in the names of fictitious purchasers. The

loan applications contained false

employment documents, verifications that

the downpayment was from either the

buyer’s personal funds or a gift, and

inflated real estate appraisals. The loans

were funded using FHA-insured mortgage

loans and resulted in losses to HUD in the

amount of $5,691,556. The sentence was

handed down after Antolin was arrested

while trying to reenter the country after

fleeing to avoid prosecution.

In the same case, defendant Elizabeth

Candella Guinto, a loan processor for

Edgardo and Danilo Guinto, was

sentenced in Federal Court, Central

District of California, to 5 months of home

detention, placed on probation for 3 years,

and ordered to pay restitution of $5,863,715

(jointly and severally with Dan and Ed

Guinto) for violation of two counts of

making false statements and aiding and

abetting. Guinto’s conviction stemmed

from her participation in a single-family

“flipping” and loan origination scheme by

assisting in the preparation of mortgage

applications in the names of fictitious

purchasers. The loan applications

contained false employment documents,

verifications that the downpayment was

from either the buyer’s personal funds or

a gift, and inflated real estate appraisals.

The loans were funded using FHA-insured
property-flipping scheme. Ries and others

caused victim real estate investors to

purchase 75 properties totaling $4.3

million. Ries’ coconspirators purchased

inexpensive single-family properties in

inner city Kansas City for which Ries

created fraudulent property appraisals

inflated by tens of thousands of dollars.

A Federal grand jury in Las Vegas,

NV, indicted defendant Mark Young,

former branch manager/owner for

Nevada First Residential Mortgage

Company, in a superseding indictment to

64 counts charging him with submitting

false information to HUD, mail fraud,

conspiracy, obstruction of an official

proceeding, witness tampering, and aiding

and abetting. Two forfeiture allegations

were added to the indictment totaling

$2,912,465. From May 2000 to June 2002,

Young directed loan officers and processors

in the origination of 233 fraudulent FHA

loans valued at more than $25 million. He

conspired with other mortgage company

employees and employees of General Realty

to manufacture and submit false

employment and income documentation

for borrowers. Most of the buyers were

illegal immigrants from Mexico. To date,

58 loans have gone into default with a total

value more than $6.2 million and a loss to

HUD of more than $1.9 million. Nevada

First Residential Mortgage Company is no

longer in business.

In Camden, NJ, a Federal jury in U.S.

District Court, District of New Jersey,

found defendant Kenneth Jenkins guilty on

1 count of conspiracy to commit mail

fraud, 10 counts of conspiracy to commit

wire fraud, 1 count of conspiracy to possess

and/or distribute a controlled substance,

1 count of money laundering, and 9 counts

of conspiracy to commit money laundering.

Jenkins, a major Camden, NJ, drug

wholesaler, organized and operated a $1

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 23

million scheme that used crack cocaine

profits to buy abandoned and dilapidated

residential properties in Camden. Jenkins

arranged cosmetic repairs on the properties

by paying his contractor in crack cocaine.

Jenkins then “flipped” the properties at an

inflated price by securing fraudulent

HUD-insured loans for unsophisticated

and unqualified borrowers. Jenkins, along

with Sabena Ingalls, a licensed real estate

agent, targeted naïve and illiterate

individuals to purchase properties. Jenkins

and his coconspirators created false and

fraudulent paperwork, such as Internal

Revenue Service (IRS) W-2 forms, pay

stubs, IRS tax forms, and credit

verifications. Several borrowers testified in

court that the homes were in poor condition

and that they were forced to move out

within weeks or months due to faulty

plumbing, electrical hazards, water

damage, holes in the roof, and wood rot.

Jenkins and his coconspirators reaped large

profits from the sales of 26 properties,

including 18 which involved a

HUD-insured loan. Fifteen of the 18

HUD-insured borrowers defaulted on their

loans. As a result of his conviction, Jenkins

conceded to a forfeiture of $1,692,785.

Jenkins, along with Thomas Harper, Sebena

Ingalls, Walter Jenkins, Ronald Rogers, and

Delores Lewis Jones, was indicted on

October 29, 2003, as part of a 37-count

indictment and arrested on October 30,

2003. The above five coconspirators of

Jenkins had previously pled guilty and

testified against him. Sentencing is

scheduled.

In Greenbelt, MD, property

speculator, John Bryant, and his wife,

Monica Silver, a real estate agent with

Re/Max Professionals, were sentenced in

Federal Court, District of Maryland, for

their admitted role in an FHA fraud

scheme. Bryant was sentenced to 15

months incarceration, to be followed by 36
indictments against several defendants for

their participation in a single-family loan

origination scheme involving 40 properties

insured through the FHA 203(b) insurance

program totaling $6,723,937. The actual

loss to date is $309,732, and restitution will

be recommended in the amount of

$388,205. The Government has also

requested that the defendants pay $174,009

in disgorgement from the profits made

when the properties were sold.

Defendants Linda Carnagie, a loan

officer working for Highland Mortgage,

and Nina Cameron, a loan officer working

for Acclaim Mortgage/Affiliated Mortgage,

each had an agreement to kick back a

percentage of each home sale to Roderick

Wesson, who for a price from $500 and

$1,000, would provide false SSNs and false

income information in the form of IRS W-2

forms and pay stubs. Wesson would also

verbally verify income if needed. Defendant

Carnagie was charged with 1 count of

conspiracy, 15 counts of wire fraud, 13

counts of making false statements, and 12

counts of misuse of an SSN. Defendant

Cameron was charged with one count of

conspiracy and one count of mail fraud.

Defendant James Galloway, a real

estate agent for Colorado Classic

Properties, and Warren Williams entered

into an agreement requiring Galloway to

provide Williams a kickback on loans that

closed using false information provided by

Williams. Galloway was charged with one

count of conspiracy, six counts of wire

fraud, five counts of misuse of an SSN, and

four counts of making false statements.

Defendant Antonio Del Valle, a loan

officer for Yes Capital Funding and VMP

Funding, worked for a time with Warren

Williams, who was also a loan officer. Del

Valle and Williams worked together to

determine the amount of money the

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 24

months supervised release. Silver was

sentenced to 6 months home detention, to

be followed by 60 months supervised

release. In addition, they were ordered to

pay restitution totaling $1.3 million to HUD

and various other lenders. The

investigation revealed that the defendants,

along with six others who were previously

convicted and sentenced, participated in

a scheme whereby Bryant would purchase

distressed homes and then flip them at

inflated prices to unqualified buyers, who

were made eligible for FHA-insured

mortgages through the use of false income,

employment, and credit information. In all,

Bryant purchased a total of 41 homes for

speculative and investment purposes, and

many of the homes that were flipped with

FHA mortgages later went into foreclosure.

Silver used her real estate contacts to

identify homes that Bryant would

purchase, and in many cases, she earned

a fee as the realtor of record on the flipped

transactions.

In the District of New Jersey, Trenton,

NJ, defendant Allen J. Meyer, a closing

attorney for the defunct Mortgage

Acceptance Corporation, was sentenced to

1 year of confinement and ordered to pay

$566,338 in restitution. Meyer previously

pled guilty to one count of conspiracy to

commit offense or to defraud the United

States. As part of a loan origination and

land-flipping scheme, Meyer falsified

mortgage loan applications and related

documents to obtain FHA-insured loans

for unqualified borrowers. Meyers’

sentencing was based on 11 loans with a

loss to HUD of $566,338. Meyer committed

these acts during the period of March 27,

1997, through September 2, 1998. Total

losses to HUD from this case are $1,190,579

for 25 FHA loans.

In Denver, CO, a Federal grand jury

for the District of Colorado returned
borrower needed to earn to qualify for the

FHA-insured loan. Defendant Del Valle

and Williams produced the false income

information using false SSNs provided by

Williams. Defendant Del Valle was charged

with one count of conspiracy, one count

of wire fraud, and one count of misuse of

an SSN. Defendant Albertico Galindo, a

former FHA-insured homebuyer, was

arrested as a result of his earlier indictment

by the Federal grand jury for the District

of Colorado for making false statements on

a loan application, which enabled him to

obtain an FHA-insured home using false

income information.

In Spokane, WA, in Federal District

Court, Eastern District of Washington,

defendant John Hansen, a real estate

appraiser doing business as John Hansen

Appraisals, was sentenced as a result of a

felony conviction for his role in a scheme

to defraud lenders and flip numerous

homes at inflated prices. Hansen was

sentenced to 18 months of incarceration,

to be followed by 36 months of supervised

release and restitution of $287,797. Four

other defendants in the case were

previously sentenced. Hansen provided

inflated appraisals of properties for his part

of an elaborate scheme to defraud

vulnerable borrowers and their lenders.

In Los Angeles, CA, in Federal

District Court, Central District of

California, defendant Virginia Montenegro

was sentenced to 6 months of incarceration,

to be followed by 36 months supervised

release, and ordered to pay restitution of

$229,376 and a fine of $100 for wire fraud.

The investigation found that Montenegro

was a coconspirator in a loan origination

scheme in which she recruited unqualified

buyers to purchase homes with FHAinsured loans, thus defrauding the HUD

single-family program. Montenegro

purchased false employment and income

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 25

verification documents from known

forgers who fabricated or inflated the

incomes of the buyers. The false forms were

used to make it appear as though the

buyers qualified for FHA-insured home

mortgage loans. As a result of Montenegro’s

involvement in the scheme, HUD approved

approximately $1,081,850 in fraudulent

home mortgage loans that resulted in an

approximate loss of $325,000.

In the U.S. District Court, District of

Colorado, Denver, CO, defendant Warren

Williams, an organizer/loan officer

involved in a fraudulent real estate

scheme that used falsified documents to

assist homebuyers in qualifying for

FHA 203(b)-insured mortgages, was

sentenced to 18 months confinement and

3 years probation and was ordered to pay

$142,337 in restitution and a $100 special

assessment fee. Williams previously entered

into a plea agreement with the U.S.

Government and pled guilty to conspiracy

for his involvement in the loan origination

scheme. Williams charged loan officers and

real estate agents a fee that ranged from

$500 to $1,000 per transaction to provide

homebuyers with false SSNs as well as false

IRS W2 forms and pay stubs. Williams was

paid this fee/kickback once the loans were

closed. The closed loans totaled $3,817,760,

and the actual loss to date is $188,832.

Restitution of $250,900 from the sales of

the properties is being sought.

In Los Angeles, CA, in Federal District

Court, Central District of California,

defendant Sergio Fernandez, real estate

agent, was sentenced to 12 months and 1 day

of incarceration, to be followed by 36 months

supervised release, and ordered to pay

restitution of $250,097 and a fine of $100 for

mail fraud. Fernandez was a coconspirator

in a fraudulent loan origination scheme in

which he obtained false employment and

income verification forms that fabricated
Sammartano were associated with

approximately 18 fraudulent FHA

mortgages and 13 U.S. Department of

Agriculture loans with a value of

$2,473,744.

In Jacksonville, FL, in U.S. District

Court, Middle District of Florida,

defendants Patrick Singletary, Robert

Singletary, Peter Russo, and Clifford Shaw

were indicted on 22 charges involving

conspiracy, making false statements to

HUD, wire/bank fraud, and money

laundering. Also named in the indictment

were the business entities CAL

Investments of North Florida, Eagle

Investments of North Florida, Sunshine

Management of North Florida, Sunshine

Mortgage Services of North Florida,

Universal Title Services of North Florida,

Dack Properties of Jacksonville, Tropical

Mortgage of North Florida, Extreme

Investments of North Florida, Global

Investments of North Florida, and Shaw

Properties of Jacksonville. The scheme

involved investor property flipping of HUD

real estate owned (REO) properties, FHA

loan origination fraud, and bank fraud.

FHA insured approximately $100 million

in loans generated by the subjects and their

businesses. HUD’s current loss on defaulted

loans is approximately $9 million. Patrick

Singletary is a former professional football

player for the Philadelphia Eagles.

In Newark, NJ, defendant Brian Lyles,

a real estate investor, surrendered to the

U.S. Marshal’s Service and appeared in

U.S. District Court, District of New Jersey.

Lyles pled guilty to one count of conspiracy

to commit mail fraud and making false

statements. A sentencing date of May 5,

2005, was set, and Lyles was released on a

$100,000 personal recognizance bond. The

investigation, which concerns mortgage

fraud, began with Lyles’ purchase of

residential homes, which he then flipped

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 26

or inflated the income of straw buyers. The

false forms were used to make it appear as

though the straw buyers qualified for FHAinsured home mortgage loans. As a result

of Fernandez’ involvement in the scheme,

HUD approved approximately $981,853 in

fraudulent home mortgage loans, which

resulted in an approximate loss of

$300,348.

In Trenton, NJ, in the U.S. District

Court, District of New Jersey, defendant

Frank Pepe, Jr., a HUD-certified appraiser

and owner of The Home Consultants and

SSP Investments, pled guilty to an

information charging him with three

counts of conspiracy to commit false

statements. Pepe purchased various

properties under the names of his

companies. He did not disclose his

ownership in these companies, and the

properties were flipped to mortgagors. Pepe

also appraised these properties. Pepe

conspired with codefendant, Kim

Sammartano, branch manager/loan

officer, American Home loans, to create

and submit fraudulent documentation,

which assisted borrowers in obtaining

FHA mortgages.

Defendant Kim Sammartano,

Manahawkin, NJ, was sentenced in U.S.

District Court, District of New Jersey, to 5

years probation, 6 months home

confinement, restitution of $109,000, and

a $100 special assessment fee. Sammartano

pled guilty to conspiracy to commit false

statements. Sammartano created and

submitted fraudulent documentation,

which assisted borrowers in obtaining

FHA mortgages. Sammartano and Pepe

created and submitted fraudulent IRS W2 forms, pay stubs, false verifications of

employment, false verifications of

rent, false gift letters, and other

qualifying documents in the borrower’s

FHA-mortgage application. Pepe and
at falsely inflated prices. Unqualified

buyers were recruited to purchase these

homes. Fraudulent mortgage applications

were completed, along with fraudulent

bank statements, false appraisals, false

employment documents, false employment

verifications, and false gift letters. This

activity resulted in fraudulent loans valued

at $3,977,224, which to date, have resulted

in a loss to HUD in the amount of $881,292.

In Los Angeles, CA, in Federal Court,

Central District of California, defendant

Sandra Ruiz, a loan officer, was convicted,

following a jury trial, of one count of

conspiracy and two counts of making

false statements to HUD. This investigation

began after OIG received a referral from

North American Mortgage Corporation

(NAMC) of Montebello, CA. The

defendant was a loan officer at NAMC

from 1995-1999. An NAMC internal

investigation revealed discrepancies in

some of the defendant’s FHA-insured

home loan applications, including the

presence of false income, employment, and

credit-related information. Following an

OIG investigation and a week-long trial in

which borrowers and cooperating

defendants/coconspirators testified

against her, Ruiz was convicted of

forwarding loans for unqualified

borrowers to HUD for FHA insurance. She

fraudulently originated more than 20 FHAinsured loans, causing more than $800,000

in losses to HUD. Three other real estate

professionals have already pled guilty as a

result of this investigation, and additional

suspects are being pursued.

In Federal Court in Baltimore, MD,

defendants Michael K. Dronet, a

speculator, and Bart Aconti, a loan officer

for Capital Mortgage, were indicted for

participating in a scheme to furnish false

statements to Capital Mortgage on

numerous FHA-insured mortgage

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HUD’s Single-Family Housing Programs 27

transactions. The investigation revealed

that defendant Dronet, individually and

through various corporate entities under

his control, would purchase distressed

properties in Anne Arundel County, MD,

at bargain rates. He would then flip the

properties at inflated prices to innocent,

first-time homebuyers, whom he qualified

for FHA mortgages through the use of false

employment documents, false gift letters

and gift checks, and false credit

information. Defendant Aconti prepared

and submitted the loan packages to Capital

Mortgage knowing that they contained the

false information. Most if not all of the

mortgagors eventually defaulted on their

payments. Approximately 40 properties

are involved with an estimated loss of at

least $650,000 to the FHA insurance fund.

In the Eastern District Court of

Missouri, St. Louis, MO, defendant Robert

Wright pled guilty to one count of bank

fraud. Wright and his sister, Kim Crowder,

who owned KRW Capital Corporation, a

mortgage brokerage company, flipped

properties to unsuspecting and unqualified

buyers. Wright and Crowder were

responsible for more than $2.2 million in

fraudulent loans, resulting in more than

$475,000 in losses. Crowder was previously

indicted for bank fraud, wire fraud, tax

evasion, and money laundering.

In the Northern District of Illinois,

Rockford, IL, defendant Jae Horn-Gerber,

also known as Jae Rank, pled guilty to one

count of making false statements to HUD,

a misdemeanor. As part of her plea

agreement, Rank accepted responsibility

for losses to HUD totaling $337,195.

Horn-Gerber was a licensed real estate

agent and employed by codefendant

Gordon Nelson as the Vice President and

Director of Marketing for his companies.

It was Horn-Gerber’s primary duty to show
conventional loans and $165,000 in

FHA-insured loans.

Also, defendant Darron Banks, owner

of New Land Title, was charged in a

28-count indictment alleging bank fraud,

wire fraud, conspiracy, and money

laundering. Darron Banks was a

participant in an illegal land-flipping

scheme involving FHA and conventional

loans devised to defraud the United States.

Defendant Galen Wade, a real estate

appraisal apprentice, has been charged in

a 28-count indictment alleging bank fraud,

wire fraud, conspiracy, and money

laundering. Galen Wade was a participant

in an illegal land-flipping scheme involving

FHA and conventional loans devised to

defraud the United States. Wade was an

apprentice for a legitimate real estate

appraiser. He used the appraiser’s license

number without his knowledge and

prepared false appraisals for a fee to assist

his associates in carrying out a fraudulent

land-flipping scheme. Wade was paid

$300-$65,000 for his role in the scheme.

Eventually, Wade became involved in

recruiting straw borrowers and straw

purchasers who were paid a fee to use their

credit for the purchase of residential

property.

Defendant Katrina Crenshaw,

Closing Agent, Texas Title Company, was

charged in a 28-count indictment alleging

bank fraud, wire fraud, conspiracy, and

money laundering. Crenshaw was one of

the participants in an illegal land-flipping

scheme involving FHA and conventional

loans devised to defraud the United States.

Crenshaw received a $3,000 payment for

closing an illegal loan transaction. She

worked at a title company as a settlement

agent, enabling her to flip the properties.

The scheme involved the recruiting of straw

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HUD’s Single-Family Housing Programs 28

homes for sale on behalf of Nelson’s

companies to prospective homebuyers and

then help initiate the mortgage loan

application process. Rank, as part of her

plea, admitted to her participation in a

scheme, in which gift letters were created

for buyers to make it appear that the funds

came from a friend or a relative when, as

Horn-Gerber knew, the buyer had received

the money from Nelson or one of his

companies. Other codefendants in this

case, Marcos Reyes and Lynn Martz, have

pled guilty, while Nelson has yet to plead.

In Federal Court, in Dallas, TX,

defendant Alan Banks, co-owner, New

Land Title, was charged in a 28-count

indictment alleging bank fraud, wire fraud,

conspiracy, and money laundering. Alan

Banks was a participant in an illegal

land-flipping scheme involving FHA and

conventional loans devised to defraud the

United States. Banks and his associates

recruited straw borrowers and straw

purchasers and paid them a fee to use their

credit for the purchase of residential

property. The straw borrowers and straw

purchasers were told that they were

“investors” and that property would

remain in their name for approximately

12-18 months, during which time the

property would be leased out. The

“investors” were unaware that the

property was being sold to them at a

significantly inflated amount and that

Banks and his associates were walking

away from the transaction with thousands

of dollars. The lender was also unaware of

monies that were being distributed to

Banks from the loan proceeds. The

mortgage payments were not made,

resulting in the foreclosure of the

properties. Banks was able to carry out the

scheme due to his ownership and position

as a settlement agent for the title company.

To date, the loss is $4.5 million in
borrowers and straw purchasers who were

told that they were “investors.”

Defendant Mark Dean, also known as

Mark Banks, the step-son of New Land

Title owner Darron Banks, was charged in

a 28-count indictment alleging bank fraud,

wire fraud, conspiracy, and money

laundering. Dean was a participant in an

illegal land-flipping scheme involving FHA

and conventional loans devised to defraud

the United States. Dean and his associates

recruited straw borrowers and straw

purchasers and paid them a fee to use their

credit for the purchase of residential

property.

In U.S. District Court, District of New

Jersey, Newark, NJ, defendant Sholom

Moskowitz appeared before Honorable

William Bassler and pled guilty to a

five-count information, charging him with

tax evasion in connection with his U.S.

Individual Income Tax Return (Form 1040)

for calendar year 2000, bank fraud, and

making a false statement to a financial

institution (concerning FHA-insured

mortgages). This investigation concerns

mortgage loan origination fraud.

Fraudulent mortgage applications, false

appraisals, false employment documents,

false employment verifications, and false

gift letters were completed in order for

unqualified buyers to purchase homes. This

activity resulted in fraudulent loans valued

at $1,249,921, which to date, have resulted

in a loss to HUD in the amount of $109,668.

Defendants Nelson Miller, Michael

Dorsey, Bertram Case “Casey” Miller, and

Katrina Bowen Soukkaseum were indicted

by a Federal grand jury in the Eastern

District of Arkansas, Little Rock, AR, on

1 count of conspiracy and 15 counts of wire

fraud. Nelson Miller was the owner and

Chief Executive Officer of Freedom

Financial Mortgage Company, a mortgage

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HUD’s Single-Family Housing Programs 29

brokerage company, and Absolute

Abstract and Title Company, a title

company, both located in Little Rock, AR.

Michael Dorsey was Comptroller of

Freedom and managed Absolute. Casey

Miller and Katrina Bowen Soukkaseum

were Freedom team managers who each

managed a group of loan officers at

separate Freedom branches.

From January 2000 to March 2002, the

above defendants allegedly conspired with

one another to commit loan origination

fraud and Real Estate Settlement and

Procedures Act (RESPA) violations relating

to at least 84 loans valued at more than

$3.5 million, containing undisclosed

inflated fees and materially false and

misleading information. Freedom and

Absolute employees under the direction of

Nelson Miller allegedly altered and

otherwise falsified loan origination and title

history documents on mortgage loan

originations. Freedom employees also

allegedly conspired to commit RESPA

violations by charging borrowers

exorbitant document preparation fees

payable to Jefferson Doc Prep, a shell

company created by Nelson Miller, without

disclosing to the borrowers the relationship

between Freedom and Jefferson Doc Prep;

by charging borrowers exorbitant loan

origination fees while also receiving large

yield spread premiums from funding

lenders; and by failing to disclose to

borrowers and funding lenders the closely

held relationships among Freedom,

Absolute, and Jefferson Doc Prep.

Equity Skimming Equity Skimming

In District Court, Western District of

New York, Rochester, NY, defendant

Edwin “Andy” Kane pled guilty to one

count of equity skimming. Kane devised a

scheme in which he purchased numerous
pled guilty to a Federal information

charging him with conspiracy to commit

wire fraud, money laundering, income tax

evasion, and filing false entries in

statements to HUD. Grubba conspired with

Michael J. Fanghella and PinnFund Chief

Financial Officer John Garitta to deceive

investors and perpetuate a “ponzi” scheme

by preparing and disseminating false

financial statements. Grubba failed to

declare his full income on Federal income

tax returns for 1997 through 2000, with

total taxes due of approximately $2.5

million.

PinnFund was a subprime lender and

a HUD-approved direct endorsement

lender. Michael Fanghella, founder and

director of PinnFund, along with other

PinnFund officers, concealed from investors

the fact that PinnFund lost $200 million

from the mortgage business while soliciting

new investor money. From 1997 through

2000, Fanghella gave investors money

contributed by new investors and falsely

represented to them that these funds were

earnings or returns on capital. Fanghella

was sentenced to 10 years in Federal prison

after he pled guilty to conspiracy to commit

wire fraud, conspiracy to commit money

laundering, tax evasion, and filing a false

entry with HUD.

In Federal Court, Western District of

Pennsylvania, Pittsburgh, PA, defendants

Terry Boring and William McKee, formerly

doing business as Zintron Corporation,

pled guilty to charges that they conspired

to defraud HUD and numerous

homeowners in connection with the Title I

home improvement program. Boring was

sentenced to 27 months incarceration, to

be followed by 60 months of supervised

release, and McKee was sentenced to 23

months incarceration, to be followed by 60

months supervised release. The defendants

were also ordered to make restitution to

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HUD’s Single-Family Housing Programs 30

FHA-insured properties throughout the

city of Rochester, NY. At the time of

purchase, all of the properties were rented

to tenants. Kane continued to collect the

rents on the properties but failed to pay

the FHA mortgages, causing the

properties to go into foreclosure. To date,

more than 30 properties have been

foreclosed upon, resulting in a loss of

approximately $1,140,000 to HUD due to

Kane’s actions. Kane could be sentenced

to up to 5 years imprisonment, a fine of

$250,000, or both and a term of supervised

release of 2 to 3 years.

Officer Next Door Program Officer Next Door Program

In the Federal Court, Central District

of California, Los Angeles, CA, defendant

James Derrick Stewart was sentenced to

pay $50,000 in restitution to HUD and a

$2,000 fine. Stewart was also sentenced to

serve 3 years of probation, with the first

4 months served on home detention with

electronic monitoring. Stewart is also to

serve 100 hours of community service.

Stewart was a former correctional officer

with the California Youth Authority who

purchased a house in Rialto, CA, and

received a 50-percent discount through the

Officer Next Door (OND) program.

Stewart never resided on the property and

instead rented it out to tenants. This was

in direct violation of HUD’s OND program

regulations which state that an officer must

live on the property for 3 years.

Conspiracy and False Statements Conspiracy and False Statements

In Federal Court in San Diego, CA,

defendant Keith G. Grubba, former

President of PinnFund U.S.A., Inc., was

sentenced to 63 months imprisonment, to

be followed by 60 months supervised

release, and ordered to pay restitution of

$187,665,543. On January 30, 2003, Grubba
HUD and to homeowners in the amount

of $1.3 million. McKee was also required

to forfeit three luxury classic automobiles.

The investigation disclosed that the

defendants would market home

improvements door to door to elderly and

low-income homeowners. They claimed

affiliation with HUD-FHA and convinced

many homeowners to order work that was

excessive or not needed and then qualify

them for home improvement loans by

falsifying material information such as

their income and credit worthiness. A total

of 41 Title I loans defaulted, resulting in

claims to HUD in excess of $600,000, in

addition to many conventional home

improvement loans that defaulted.

In Federal Court in Lake Success, NY,

defendant Lenore Thomas, former Loan

Processor and Underwriter, American

International Mortgage Bankers (AIMB),

Lake Success, NY, pled guilty to

conspiracy. She was sentenced to 36

months of supervisory probation. Several

employees from AIMB assisted in obtaining

FHA-insured loans from questionable

homebuyers located in the New York

metropolitan area, including Nassau and

Suffolk Counties. More than 90 percent of

the FHA-insured loans from AIMB

contained one or a variety of altered

documents, including false pay stubs, bank

statements, IRS W-2 forms, rent

verifications, verifications of employment,

verifications of deposit, credit worthiness

letters, gift letters and credit reports.

In the same case, in Federal Court,

Eastern District of New York, defendant

Nicholas Graham, an outside contractor

working with AIMB in Lake Success, NY,

was sentenced to 41 months incarceration

and 3 years probation and was required

to pay a court ordered restitution of

$878,235. He may also face the possibility

of being deported after serving his

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HUD’s Single-Family Housing Programs 31

sentence. Graham pled guilty to conspiracy

and making false statements. Graham

helped AIMB by ensuring that questionable

homebuyers located in the New York

metropolitan area would qualify for

FHA-insured loans.

In U.S. District Court in Chicago, IL,

defendant Yinka Otabor, the Executive

Director of Hope, a HUD-approved direct

sales nonprofit, was sentenced to 6 months

home confinement, 4 years probation, and

restitution in the amount of $94,627.

Saundra Mayfield, an investor, was

sentenced to 8 months in prison, 3 years

probation, and restitution in the

amount of $185,431. Paul Crutchfield,

the Executive Director of Omega, a

HUD-approved direct sales nonprofit, was

sentenced to 12 months in prison, 3 years

probation, restitution totaling $376,190 (of

which $143,772 had been paid prior to

sentencing), and a $5,000 fine.

Crutchfield and Mayfield pled guilty

for their role in an elaborate scheme to use

HUD-REO properties, which were

purchased under the direct sales program

with a 30-percent discount. Otabor,

Crutchfield, and Mayfield admitted to

violating HUD’s direct sales program rules

by fraudulently concealing the nature of

the transactions from HUD and making

material misrepresentations to HUD

relating to the purchase, ownership, and

disposition of the homes. In particular, the

HUD-REO properties were used as

investments for family members and

friends or Section 8 rental properties or

were resold to unqualified buyers with FHA

insurance through the submission of false

rehabilitation documents, phony gift

letters, and fraudulent employment.

In U.S. District Court at Chicago, IL,

defendant Virgil Griffin pled guilty to one

count of mail fraud. This plea also held that
to 1 year and 1 day in prison and ordered

to pay restitution of $230,481. Defendant

Smith’s brother, defendant Mario McGee,

was also sentenced to serve 6 months in

prison and ordered to pay $140,508 in

restitution. Defendants Smith and McGee

previously pled guilty to making false

statements to HUD and misuse of an SSN.

Mardell Smith participated in a mortgage

fraud scheme that involved submitting

false information on loan applications for

the purchase of residential real estate,

knowing that the loans would be offered

to HUD for insurance. The scheme

involved using employer identification

numbers as SSNs and the submission of

false income documents.

In Greenbelt, MD, in Federal Court,

District of Maryland, defendant Lynn

Kromminga, a settlement attorney, was

sentenced to 12 months incarceration, to

be followed by 36 months supervised

release, fined $3,000, and ordered to repay

$299,479 to HUD and other lenders.

Kromminga had previously pled guilty to

conspiring with codefendant John Bryant,

a speculator, to prepare false settlement

statements in 1998 and 1999 on FHA and

conventional loans. The defendant also

admitted that he prepared fraudulent title

insurance policies to facilitate settlements.

In Los Angeles, CA, defendant Emma

Barrientes agreed to pay a penalty of

$5,500 to HUD pursuant to a PFCRA

settlement. Barrientes was previously

sentenced criminally in the Federal Court,

Central District of California, to pay

$125,772 in restitution to HUD and serve

4 months in jail. As a loan officer for Star

Funding, Inc., Barrientes assisted two

ineligible borrowers in obtaining

HUD-insured mortgages. Barrientes

prepared false loan applications supported

by false documentation concerning

financial circumstances and eligibility for

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HUD’s Single-Family Housing Programs 32

Griffin was responsible for restitution in

the amount of $216,378. Griffin was part

of a scheme in which seven other

individuals, James Rucker, Gregory Jacobs,

Stephen Lawhorn, Tina Hoard, Patricia

Mays, Carmen Perry, and William Scott,

were also charged. Griffin admitted that,

as soon as he began working at

Comprehensive Mortgage and continuing

through his employment at Design

Mortgage Corporation, he created and

submitted false loan documents. These

included IRS W-2 forms, pay stubs, rent

payment checks, verification of deposits,

verification of employment, and other false

documents to be placed into loan files.

In the same case, in Chicago, IL, U.S.

District Court, defendant William Scott

pled guilty to one count of wire fraud. Also,

defendant Stephen Lawhorn pled guilty to

one count of mail fraud. While Scott was

responsible for restitution in the amount

of $66,851, Lawhorn’s restitution was in

the amount of $177,000. As part of his plea,

Scott accepted responsibility for his role in

initiating fraudulent loan packages and

assisting in the setup of shell

companies, known as Pinnacle Investment

Corporation of America, Wescorp

Financial, Inc., and Wescorp Realty Corp.,

while employed at Comprehensive

Mortgage Corp. Lawhorn admitted to

signing fraudulent loan applications,

completing phony land contracts, and

creating fictitious IRS W-2 forms. The

purpose of these companies was to

purchase properties using false information

on the loan application, forging other

people’s names on verification forms, and

creating false documents for loan files such

as tax returns and bank checks.

In St. Louis, MO, in Federal Court,

Eastern District of Missouri, defendant

Mardell McGee Smith, owner of New

Alliance Enterprises, Inc., was sentenced
mortgage insurance. The false information

concerning financial documents included

IRS W-2 forms. Barrientes caused the

borrowers to sign certifications stating that

the information was true and correct,

although she knew the information to be

false. Barrientes submitted the false loan

applications to her employer for approval

and submission to HUD for insurance.

Barrientes caused the lender to sign a

certification that the information was true

and accurate, although she knew it to be

false.

In Federal Court, Central District, in

Sun Valley, CA, defendant Antonio

Esquivel was sentenced to serve 15 months

in prison. He was also ordered to pay

$108,580 in restitution to HUD. He

previously pled guilty to two counts of

making false statements to HUD. In June

1999, Esquivel submitted a fraudulent

FHA-insured home mortgage loan

application for the purchase of a property.

He was working as an independent real

estate agent assisting individuals in the

processing of mortgage loan applications

for the purchase of residential properties.

Esquivel was released to the Immigration

and Naturalization Service on January 23,

2004, and was deported on February 2,

2004. He was later arrested on October 29,

2004, for illegally returning to the United

States and turned over to the Department

of Homeland Security.

In Dallas, TX, pursuant to the Texas

Occupations Code, the Texas Real Estate

Commission revoked the real estate license

of defendant Charles E. Reynolds.

Reynolds was a South Dallas real estate

agent who was previously sentenced to 30

months in Federal prison following his

conviction on Federal housing fraud

charges. Reynolds was previously

convicted on Federal charges of making

false and fraudulent statements to a

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HUD’s Single-Family Housing Programs 33

Federal agency. Reynolds was also ordered

to pay restitution in the amount of

$100,310 to HUD.

In Los Angeles, CA, defendant Raul

Altamirano agreed to make a payment of

$40,754 to HUD pursuant to a PFCRA

settlement. Altamirano worked as a real

estate agent for Dynamic Brokers, Inc., in

Montebello, CA. Altamirano purchased

false and fraudulent pay stubs and IRS W2 forms from forgers in the names of

unqualified borrowers to qualify them for

FHA-insured loans. Altamirano was

indicted on June 10, 2002, sentenced on

January 13, 2003, to probation for 3 years,

and ordered to pay $47,527 in restitution

to HUD.

Defendant Rogelio Gonzalez Jr. was

sentenced in Federal District Court, Central

District of California, Los Angeles, CA, to

serve 1 year of probation and to pay

$31,535 in restitution to HUD. Gonzalez

was also ordered to pay a special assessment

fee of $200. In March 2001, Gonzalez pled

guilty to submitting false statements to

HUD. Gonzalez, Jr., worked as a real estate

professional buying and selling properties

and was responsible for the submission of

mortgage loan applications used to

purchase FHA-insured properties.

Gonzalez, Jr., caused two loans with

fraudulent income documents to be

submitted to HUD. Gonzalez, Jr.’s

sentencing was part of a larger

investigation which revealed that the

owners of April 8 Realty in La Puente, CA,

fabricated and sold thousands of false loan

supporting documents to numerous real

estate agents.

Also in this case in Orange County,

CA, defendant Adriana Forero was

sentenced to pay a fine of $3,000 to the

United States as well as a special

assessment fee of $100. Forero was also
causing an act to be done, and conspiracy

and two counts of making false statements.

Bahamondes acted as a loan officer and real

estate agent in transactions involving the

sale of real property to unqualified buyers.

He obtained money from real estate

investors, including himself, and caused

such money to be placed as downpayments

on behalf of unqualified buyers. He enlisted

notaries public to fraudulently notarize

necessary signatures of straw buyers and

fictitious buyers. Bahamondes caused

mortgage applications for unqualified

buyers that contained false employment,

income, and credit information to be

completed and submitted for funding and

approved by FHA.

Bahamondes and other unindicted

coconspirators caused the funding and

insurance of approximately $7.5 million in

fraudulent FHA-insured home mortgage

loans on properties in Los Angeles, San

Bernardino, and Riverside Counties.

Approximately 44 of these properties went

into default and were resold at a loss to

HUD in excess of $2.5 million.

In the same case, in Los Angeles, CA,

the U.S. Attorney’s Office in the Central

District of California issued an information

charging defendant Bernadette Baldonado

with two counts of wire fraud and aiding

and abetting. Baldonado worked as a loan

processor and also acted as a notary public

on sales of real property to unqualified

buyers. Baldonado caused fraudulently

prepared employment, income, credit, and

identification documents to be submitted

to FHA. Baldonado also solicited business

owners to falsely certify that they employed

the buyers, when she knew they did not.

Baldonado, aided and abetted by others,

caused the funding and insurance of

approximately $703,000 in fraudulent

FHA-insured home mortgage loans in the

Los Angeles County area. All of these

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HUD’s Single-Family Housing Programs 34

placed on probation for 1 year. Forero, who

was originally identified as a target in the

“April 8 Realty” investigation, was charged

with one count of mail fraud, one count of

making a false statement, and one count

of aiding and abetting on December 18,

2003. This investigation resulted in 29

indictments against 38 targets in Southern

California. Adriana Forero purchased

fraudulent documents from Ocampo, a

forger who produced and sold fraudulent

documents to individuals in the real estate

business.

In Los Angeles, CA, in U.S. District

Court, Central District of California, after

a 4-week jury trial, defendant Frank Acosta

was convicted of a total of 25 counts related

to an FHA loan fraud scheme. The jury

deliberated approximately 4 hours before

rendering guilty verdicts on 13 counts of

false statements, 7 counts of wire fraud, 5

counts of money laundering, and 2 counts

of conspiracy. Defendant Acosta and his

coconspirators were involved in a scheme

in which FHA loans were issued to both

unqualified and straw buyers. Some of the

straw buyers included teenagers who

played on a junior college baseball team

coached by one of Acosta’s coconspirators.

Acosta’s wife, Elizabeth Madrigal, who

was also involved in Acosta’s scheme, pled

guilty in 2003 to one count each of wire

fraud, conspiracy, and money laundering,

and she is currently serving a 40-month

Federal sentence. Two other cooperating

coconspirators, Gerard Current and

Fernando Garcia, are scheduled to be

sentenced pursuant to their plea

agreements. Sentencing for Frank Acosta

is scheduled for June 13, 2005. The

estimated loss to HUD in this case is $1.5

million.

In Los Angeles, CA, in Federal Court,

defendant George Bahamondes pled guilty

to one count of aiding and abetting,
properties went into default and were

resold at a loss to HUD in excess of

$889,686.

In Los Angeles, CA, in the Central

District of California, defendants Paul and

William Peterson’s indictment was

superseded. The Petersons were employed

at Peterson Land and Development, a

company which developed and sold

residential properties, some of which were

sold pursuant to home mortgage loans

insured by FHA. Paul and William

Peterson knowingly conspired and agreed

to make false, fictitious, and fraudulent

statements to HUD. Both Paul and William

Peterson were charged with one count of

conspiracy, one count of making a false

statement, and two counts of aiding and

abetting. The approximate amount of loss

to HUD is $1,123,030.

In Cleveland, OH, a Federal grand

jury in the Northern District of Ohio

indicted defendant Stanley Motyka, a

licensed Ohio real estate agent, on nine

felony counts. Motyka was charged with

making false statements to HUD, making

false statements on loan and credit

applications, mail fraud, and bank fraud

in connection with FHA-insured loans

obtained on behalf of borrowers as well as

conventional loans obtained on behalf of

himself.

According to the indictment, it was

part of a scheme in which Motyka offered

homes to unqualified buyers in the

Cleveland, OH, area knowing that those

buyers had insufficient resources to

legitimately qualify for mortgage loans.

Through various fraudulent means,

Motyka was alleged to have aided the

prospective buyers in securing approval of

mortgage loans, which ultimately resulted

in the sale of the subject properties. The

indictment charged that Motyka created

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HUD’s Single-Family Housing Programs 35

fraudulent Social Security checks, as well

as falsifying verifications of employment,

bank deposits, verifications of rent, letters

of credit, IRS W-2 forms, pay stubs, and

gift letters. In total, 13 of the 15 loans

charged were FHA-insured, and the

mortgages totaled $935,990. Of the 13

FHA-insured loans, 6 are currently in the

foreclosure process, and 2 have gone

through foreclosure.

In addition, Motyka purportedly

overstated income and provided

fraudulent pay stubs and IRS W-2 forms

in support of seven mortgages obtained for

his personal properties. The mortgages for

Motyka’s personal properties totaled

$737,250.

In U.S. District Court in Chicago, IL,

defendant Michael Fedynich, a broker/

seller, was indicted on one count of making

false statements to HUD, a misdemeanor,

and two counts of mail fraud. The

indictment alleged that from January 1996

and continuing until December 1999,

Fedynich, the owner of Westgate Realty,

or people under his direction provided

homebuyers with downpayment funds in

order for the perspective buyers to qualify for

Fedynich-owned properties. According to the

indictment, Fedynich provided the

downpayment to a friend or a relative of the

homebuyer and instructed those persons to

execute a “gift affidavit” in which they falsely

stated that they had provided the

downpayment to the homebuyer as a gift.

The person executing the gift affidavit would

use the funds provided by Fedynich to

obtain a cashier’s check made payable to

the homebuyer. Following these

transactions, Fedynich purportedly

provided false certification at closing,

which indicated that he had not provided

funds to the borrower.
In summary, this investigation

involved 10 FHA-insured loans totaling

$716,000 in insurance and losses totaling

$516,429.

In Los Angeles, CA, pursuant to an

information filed by the U.S. Attorney’s

Office, Central District of California,

defendant Rene Ibarra, a real estate agent,

pled guilty to one count of conspiracy and

three counts of making false statements.

Ibarra was a coconspirator in a fraudulent

loan origination scheme in which he

obtained false employment and income

verification documents from forger Maggie

Cuavas, who was convicted in a separate

investigation. The documents obtained by

Ibarra fabricated and/or inflated the

income of mortgagors and were used to

give the false appearance of mortgagors

qualifying for FHA-insured home mortgage

loans. In addition, Ibarra, as an investor,

provided the downpayment funds for

several mortgagors and misrepresented

the fact on the applicable HUD-1

settlement statement addendums. Ibarra’s

involvement in the scheme resulted in a loss

to HUD of approximately $128,496.

In Birmingham, AL, in Federal Court,

Northern District of Alabama, defendant

Taveres C. Williams, a loan officer, was

indicted on Social Security fraud,

submitting false statements, and theft of

government property. Williams, who

worked as a mortgage industry

professional, allegedly caused false

documentation to be submitted to HUD

concerning FHA-insured mortgages. The

total amount of loans involved was more

than $200,000 with a loss to HUD of more

than $112,000.

In Seattle, WA, in Federal Court,

Western District of Washington, defendant

Mildreada Andrews was charged with

four felony counts of use of a fraudulently

obtained SSN and one count of making a

false statement. This investigation began

after HUD-OIG received allegations that

Andrews was involved in a single-family

loan fraud scheme in which the defendant

would purchase homes using false

names, SSNs, and employment/wage

documentation. After purchase of the

homes, the defendant would collect a

substantial amount of rent on the homes

and immediately default on the mortgages.

One of the three homes in this fraud scheme

had an FHA-insured mortgage. A claim on

the FHA defaulted mortgage was made,

and HUD was required to pay in excess of

$188,000 due to the foreclosure.

In Phoenix, AZ, a Federal grand jury

in U.S. District Court, District of Arizona,

indicted defendants Leonel Estrella and

Maria Carmen Garcia on one count of

conspiracy and six counts of submission of

false statements to HUD. The grand jury

further indicted Estrella on three counts of

bank fraud. The investigation disclosed that

Estrella, a licensed realtor, and Garcia, a

loan officer, submitted falsified wage

documents and SSN information to HUD

to obtain FHA-insured home loans for their

mutual clients. The investigation further

disclosed that Estrella created false wage

documents for other clients, which were

used to obtain conventional home loans

from commercial lenders such as

Washington Mutual Bank, FA. The

investigation has identified 14 FHA-insured

home loans involved in the scheme with

insured mortgages totaling $1.58 million

and 14 conventional home loans with

mortgages totaling $1.74 million. Five

FHA-insured home loans have foreclosed,

resulting in a loss to HUD of $140,310. One

conventional home loan has foreclosed

with a loss to Washington Mutual Bank,

FA of $12,363.

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 36
Mail, Wire, and Bank Fraud Mail, Wire, and Bank Fraud

In Federal Court in Los Angeles, CA,

defendant Luis Angel Sanchez was

sentenced to 3 years probation on one

count of wire fraud, aiding and abetting,

and one count of false statements, aiding

and abetting. Sanchez was also ordered to

pay restitution of $620,510 and a special

assessment of $200. Sanchez located

residential properties that were on the

market for sale. These properties were then

purchased for the purpose of resale.

Potential buyers were recruited for these

properties who often did not qualify for

FHA-insured mortgage loans due to

inadequate income or insufficient assets for

a downpayment. Recruiters received a

commission for every purchaser they

located. The buyers were then assisted in

finding cosigners for their loans. As a

result, fraudulent mortgage applications

were completed and submitted in the

names of buyers and cosigners that

contained false employment documents,

false verifications that downpayments

were from either the buyers’ personal funds

or a gift, false explanation letters

concerning the relationships of the

cosigners to the buyers, and false

notarizations of the signature of buyers and

cosigners. The total loss to HUD is

approximately $23 million.

In Tampa, FL, in U.S. District Court,

Middle District of Florida, defendant

Alison Arnold was sentenced to 24 months

incarceration and 24 months supervised

release and ordered to pay $265,000 in

restitution and a special assessment fee of

$100. Arnold was also sentenced to

prohibition from engaging in any

employment relating to mortgage services

or financial lending. Arnold pled guilty on

September 30, 2004, to conspiracy to

commit bank fraud, false representation of

an SSN, false statements to HUD, and

identity theft. Arnold, who was a mortgage

loan processor, began using a false

identity. Arnold, along with an unnamed

coconspirator (who has not been formally

charged at this time), rented a Palm Harbor

home, forged a deed to take title to it, then

filed simultaneous applications to take out

three mortgage loans totaling nearly

$400,000. Arnold used a new name,

“Teresa Blecker,” along with her son’s SSN

and another set of phony financial

credentials, to obtain an FHA-insured

mortgage loan in Hillsborough County.

The FHA loan was mortgaged for

approximately $150,000.

In Los Angeles, CA, in Federal District

Court, Central District of California,

defendant Domingo Salaza was sentenced

after he pled guilty to an information of

two counts of wire fraud. Salazar was

sentenced to pay $228,000 in restitution to

HUD. He was also ordered to pay a $200

fine and serve 6 months of probation.

Salazar worked as a real estate agent at

Dynamic Brokers and caused fraudulent

information to be submitted to HUD.

Salazar was originally identified as part of

the “April 8 Realty” investigation.

In Springfield, MA, a Federal District

Judge sentenced defendant Chester

J. Ardolino to 6 months house arrest,

3 years probation, a $7,000 fine, and

200 hours of community service.

This sentencing is the result of the

December 17, 2004, guilty verdict on seven

counts returned by a Federal jury in

Springfield, MA, in connection with a

single-family fraud investigation.

Defendants Chester J. Ardolino, Police

Captain with the City of Springfield, MA,

Police Department, and Michael

Hutchison, a former employee of the

Hampden County Employment and

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 37
Training Consortium (HCETC), a City of

Springfield agency funded with

Community Planning and Development

(Community Development Block Grant)

funds, were both found guilty. The two

were arrested in January 2004, following

the unsealing of a March 2003 indictment,

which charged Ardolino and Hutchison

with seven counts of wire fraud, mail

fraud, false impersonations, money

laundering, and bank fraud. The

indictment alleged that Hutchison and

Ardolino conspired to fraudulently obtain

the mortgage to purchase a property at an

inflated price using a straw buyer, which

in this case, was Hutchison’s sister. The

indictment further alleged that Hutchison

committed wire fraud using the HCETC fax

machine to transmit the fraudulent loan

documents to the mortgage company. The

indictment also contained a forfeiture count

for the property valued at $83,000.

Also, defendants Paul Starnes, Marc

Brown, and David McCoy, all of

Springfield, MA, were indicted by a

Federal grand jury. The indictment charged

the defendants with conspiracy to launder

money and wire fraud in connection with

a multimillion dollar mortgage scheme. The

defendants were involved in a propertyflipping scheme, in which 10 other

individuals were previously indicted in

September 2004, that had included more

than 70 properties in the Springfield, MA,

area, including HUD-REO properties

purchased with FHA-insured mortgages

totaling more than $5,900,000. The scheme

by these three defendants duped lenders

and homebuyers out of $1.5 million. The

scheme included purchasing distressed

properties, paying off appraisers to inflate

their values, recruiting poor first-time

buyers, drafting phony financial

documents to obtain mortgages, and

collecting large profits.

Also in this case in Springfield, MA,

in U.S. District Court, defendant Elliott

Beals, a real estate broker in the Springfield

area, entered a guilty plea on an

information filed by the U.S. Attorney’s

Office. Beals agreed to plead to four counts

of failure to file income tax returns for tax

years 1998, 1999, 2000, and 2001 on

income generated from land flipping. Beals

was offered this plea agreement as a part

of the overall agreement to testify. Beals

was the main witness in the recent trial of

former Springfield patrolman Chester

Ardolino and former Greater Springfield

Entrepreneurial Fund employee Michael

Hutchison, in which they were convicted

of money laundering and wire/mail fraud

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 38

Copyright, 2005. The Republican - Springfield,

MA. Reprinted with permission.
involving the flipping of one of the

properties. Beals was involved in

numerous land flips, some involving

HUD-REO properties, all of which

occurred during the 1998-2001 period in

the Springfield area. A sentencing date is

pending.

Forgery, Theft, Embezzlement,

Forgery, Theft, Embezzlement, Forgery, Theft, Embezzlement,

and Money Laundering and Money Laundering

In U.S. District Court, Western District

of Michigan, Grand Rapids, MI,

defendant Jack Brown, the president of

Great Lakes Housing Incorporated (GLHI),

a HUD-approved nonprofit, was sentenced

to $443,694 in restitution, 400 hours of

community service, and 15 months

incarceration, while defendant Tim Doctor,

an employee of GLHI, was sentenced to

$62,000 in restitution, a fine of $5,000, and

12 months probation following their

September 2004 guilty pleas.

Brown and Doctor were responsible

for engaging in fraudulent transactions

involving HUD and FHA-insured

mortgages. Both admitted to misleading

HUD officials into believing GLHI was a

nonprofit entity when it operated for a

profit for their personal gain. Because of

their misrepresentations, GLHI was able to

purchase at least 105 HUD properties

within the Grand Rapids Office jurisdiction

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 39

through the help of Terry Hansen, the

former Chief of HUD’s Property

Disposition Branch, for a fraction of their

true value and then obtain FHA 203(k)

loans to rehabilitate the homes. Brown and

Doctor profited from the purchases and use

of the 203(k) rehabilitation funds. Hansen,

his wife Judy, her two children, Chad and

Dawn Elve, and John and Emalee Birne,

former HUD contractors, have been

convicted and sentenced in this case.

A Maricopa Country grand jury,

Phoenix, AZ, indicted Edward Carrillo in

Scottsdale, AZ, on three counts of

fraudulent schemes and artifices and one

count of theft. Carrillo was arrested, and

search and seizure warrants were executed

at his home/office. During the execution

of the warrants, a Cadillac Escalade, a

Chevrolet Corvette, and $21,281 in cash

were seized. The seizure warrant also

included a BMW, which has not yet been

located. Carrillo, doing business as Sahara

Investments, sold his fraudulent “

pre-foreclosure” business to three investors

for $400,000 in January 2004, 6 weeks after

HUD-OIG executed a Federal search

warrant at Carrillo’s home/office. The

Federal investigation was initiated after a

mortgage company notified HUD-OIG

that Carrillo had been purchasing

FHA-insured properties through HUD’s

“pre-foreclosure” program, at substantial

discounts, often using fraudulent

Copyright, 2005. The Republican - Springfield, MA. Reprinted with permission.
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 40

appraisals. Carrillo then sold the homes the

same day he purchased them at market

value. HUD paid substantial claims for

each property sold through the

“pre-foreclosure” program. The ongoing

Federal investigation disclosed that

coconspirators at the title company, a

mortgage company, and housing

counseling agencies accepted large sums of

money to approve and assist with over 100

“pre-foreclosure” sales in the Phoenix area.

The grand jury indictment also alleged that

in June 2004, Carrillo sold two

FHA-insured properties to investors for

$85,000 and $115,000. The investors paid

Carrillo cash for the properties with

defaulted mortgages. Carrillo never paid off

the previous mortgages and refused to

return the investors’ money.

In Seattle, WA, in U.S. District Court,

Western District of Washington, defendant

Scott Anderson was sentenced to 24

months imprisonment, 36 months of

supervised release, and $108,511 in

restitution. Anderson previously pled

guilty to interstate transmission of stolen

funds, count six of the second superseding

indictment. Anderson was initially indicted

on eight counts of conspiracy to commit

wire fraud, money laundering, interstate

transmission of stolen funds, and

possession of cocaine. As the president/

owner of Washington One Stop, an escrow

company, Anderson absconded with funds

from the escrow trust account and failed

to properly disburse escrow funds.

Anderson’s actions affected Section 8 of

RESPA and Federal statutes.

Defendant Gary T. Coley was charged

in Federal Court in Baltimore, MD, with

issuing fictitious obligations in connection

with a scheme to defraud FHA mortgagors

who were facing foreclosure. The

investigation disclosed that Coley would

contact homeowners and represent himself

as an investor who would be willing to

assist them in stopping imminent

foreclosure proceedings. He collected

substantial funds from them, then

manufactured counterfeit, worthless

Treasury notes that he submitted to banks

and mortgage companies toward payment

of the mortgages. Allegedly, Coley passed

approximately $1.8 million in counterfeit

Treasury notes. Many of the affected

homeowners, in addition to losing the

money they gave Coley, also ended up

losing their homes. Further, it is estimated

that almost $1 million in claims to the

mortgage insurance fund will be made on

FHA mortgages that were involved in this

scheme.

In East St. Louis, IL, defendant Phillip

Cohn, a real estate developer, pled guilty

in U.S. District Court, Southern Illinois, to

mail fraud, money laundering, and

violating the Environmental Clean Air Act.

Defendant Katrina Frede, Cohn’s wife,

also pled guilty to one count of bank fraud.

Phillip Cohn was previously indicted on

20 counts that included 3 counts of mail

fraud, 11 counts of money laundering, 3

counts of bank fraud, 1 count of wire

fraud, and 2 counts of environmental

crimes. Cohn admitted creating false

invoices and falsely endorsing checks to

obtain portions of $1 million placed in

escrow for the environmental cleanup of

East St. Louis School property. Cohn also

admitted obtaining more than $620,000 in

loans using the environmental escrow

funds as collateral. The lending bank was

unaware that the escrow funds had to be

used for environmental cleanup, and the

lending bank was also unaware that Cohn

was creating false invoices to obtain the

escrow funds for his own personal use. In

addition, Cohn admitted the illegal

removal of asbestos-containing materials

from the Spivey Building, a separate

property he owned.
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 41

In Dallas, TX, Assistant U.S. Attorney

William McMurrey filed an information in

the Northern District Court of Texas on

defendant Frederico M. Garza, Jr., for

defrauding HUD. Garza owned and

operated Garza Reality. He was in the

business of buying and selling real estate

and representing individuals who wanted

to buy and sell real property. Garza

purchased HUD foreclosures in his parents’

names, then contracted to sell the HUDacquired properties to homebuyers at

inflated markups. The HUD properties that

Garza acquired were in poor condition

and needed significant repairs to make

them habitable and FHA insurable for

financing. Garza contracted to sell the

HUD homes to buyers with the

understanding that the properties would

be repaired. Garza arranged the financing

for the first-time unsophisticated

homebuyers who trusted him. He caused

loan documents to be submitted to lenders

for approval for the buyers without

informing the lenders the properties were

in disrepair. On a number of occasions,

Garza contracted to sell the property before

he actually owned it as well as providing

fraudulent gift funds for the

downpayments. There were 18 HUD-REO

properties involved, with an FHA-insured

amount of $1,221, 053.

Defendant Harold V. Fields, real estate

agent, Valley Home Experts, Glendale, AZ,

pled guilty in the Maricopa County

Superior Court, Phoenix, AZ, to one count

of fraudulent schemes, one count of theft,

and one count of unlicensed real estate

activity. Fields had previously been indicted

by an Arizona State grand jury on 3 counts

of fraudulent schemes, 1 count of

unlicensed real estate activity, and 26

counts of theft. Valley Home Experts had

been the number one seller of HUD-REO

properties in Arizona for several years. The

investigation disclosed that Fields recruited

investors through advertisements in the

newspaper and requested that each investor

give him $25,000 to $100,000 to buy HUDREO properties. 26 investors lost $1,502,166

in the scheme. Fields told each investor

that these funds would be held in a trust

account to be used for downpayments and

closing costs for up to 12 investment

properties. Often because of financing

issues, many of the loans did not close, and

the properties were recycled back into the

HUD inventory. Many of the investors

began to demand that Fields return their

money after he failed to provide closing

costs for several homes. These funds were

never deposited into a trust account, and

the investigation disclosed that Fields wire

transferred more than $500,000 to an

offshore sports betting operation.

  

Chapter 3

HUD’s Public and Indian

Housing Programs
Section 8 Voucher Program Section 8 Voucher Program

Activities Activities

We audited the Housing Authority of

the City of Houston, TX, Section 8

Housing Choice Voucher program. This is

the second in a series of audits at the

Authority. Our audit objective was to

determine whether the Authority’s

contractor was performing inspections to

ensure assisted units were decent, safe, and

sanitary before tenants moved in and

annually thereafter as HUD and

Authority policies required.

In most cases, the Authority’s

contractor performed annual and initial

inspections as required. However, since a

majority, 88 out of 118 units, failed our

The chart cost figures in this chapter represent the actual monetary benefits for all reports issued during

this semiannual period. The monetary benefits shown in the Profile of Performance represent only those

reports with management decisions reached during this semiannual period. Because there is a time lag

between report issuance and management decisions, the two totals will not agree.

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 44

Chart 3.1: Public and Indian Housing Program

Reports Issued

22

 Internal Reports External Reports

1

 Questioned Costs Funds Put to Better Use

Chart 3.2: Public and Indian Housing Chart 3.2: Public and Indian Housing

Program Dollars Program Dollars

200,000,000

150,000,000

100,000,000

50,000,000

0 Internal Reports External Reports

T he U.S. Department of

 Housing and Urban

Development (HUD) provides grants and

subsidies to approximately 4,200 public

housing authorities (PHAs) nationwide.

About 3,200 PHAs manage public

housing units, and another 1,000 with no

public housing manage units under Section

8 programs. Many PHAs administer both

public housing and Section 8 programs.

HUD also provides assistance directly to

PHAs’ resident organizations to encourage

increased resident management of public

housing developments and to promote the

formation and development of resident

management entities and resident skills

programs. Programs administered by PHAs

are designed to enable low-income

families, the elderly, and persons with

disabilities to obtain and reside in housing

that is safe, decent, sanitary, and in good

repair.

Audits

During this reporting period, the

Office of Inspector General (OIG) issued

23 reports, 1 internal audit and 22

external audits in the Public and Indian

Housing program area. These reports

disclosed approximately $52.9 million

in questioned costs and $188.2 million

in recommendations that funds be put to

better use. We reviewed the Section 8

Housing Choice Voucher program

activities and public housing activities,

including PHA activities with related

nonprofit entities, and PHA pension plan

forfeiture policy. In addition, we conducted

a corrective action verification review.
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 45

housing quality standards (HQS)

inspections, the contractor’s inspections

did not ensure the units were decent, safe,

and sanitary. The significant failure rate

occurred because the contractor appeared

to be more focused on performing a large

quantity of inspections than on the quality

of those inspections.

Projecting the results of the statistical

sample to the population indicates at least

9,088 of the Authority’s 13,524 units do not

meet standards. In addition, our

inspections showed that 39 of the 88 units

had either uncorrected items from previous

inspections or conditions that had existed

for more than a year. Thus, our results

indicate the Authority expended $26.1

million on 3,503 units, which have failed

items that have existed for a year or more.

Further, since the Authority’s contractor

did not ensure the units met standards, its

tenants lived in units that were not decent,

safe, or sanitary.

We recommended that the Houston

Office of Public Housing require the

Authority to ensure all 88 failed units we

identified meet standards. Further, the

Authority needs to inspect all of its

remaining units within the next 12 months

to ensure those units also meet standards

since our results indicated at least 67

percent will not. If the units cannot be

made decent, safe, and sanitary, the

Authority should either abate the rent or

terminate the tenant’s voucher. If the

Authority corrects its inspection program,

it will avoid paying an estimated $26.1

million on units that are not decent, safe,

and sanitary in the next year. (Audit

Report: 2005-FW-1007)

We audited the Housing Authority of

the City of Houston, TX, Section 8 Housing

Choice Voucher program. This is the third

review in a series of audits at this Authority.

We designed the audit to determine

whether the Authority’s contractor

correctly calculated housing assistance

payments and to determine the effect if the

contractor calculated the payments

incorrectly.

The Authority’s contractor did not

correctly calculate or support its

calculations of Section 8 housing assistance

payments. Our projection of the results of

a statistical sample showed the Authority’s

contractor made errors in at least 7,168 of

its 13,732 housing choice voucher files over

a 13-month period. Due to the contractor’s

errors, the Authority overpaid at least $1.1

million and underpaid at least $115,000 in

Section 8 assistance. The Authority did not

detect or prevent the errors because it did

not properly monitor its contractor and

relied on the contractor to police itself. The

Authority terminated its contract with the

contractor in October 2004. However, if the

Authority does not implement controls and

procedures to prevent similar errors, it will

incur at least an additional $1 million in

incorrectly calculated housing assistance

payments over the next 12 months.

We recommended that HUD require

the Authority to review all of its Section 8

housing choice voucher files and correct

any errors that have occurred. HUD should

require the Authority to repay the

approximate $13,000 that we identified as

ineligible payments and pay the tenants

approximately $1,700 that we identified as

underpaid assistance based on our sample

file reviews. Also, HUD should require the

Authority, based on its file reviews, to either

support more that $1.1 million that we

identified as unsupported payments or

repay those Section 8 funds to HUD and

support more than $113,000 that we

identified as assistance underpayments or

pay those Section 8 funds to the tenants.

Finally, HUD should require the Authority
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 46

to implement controls to prevent future

housing assistance payment errors, which

we project to be at least $1 million per year.

(Audit Report: 2005-FW-1006)

We completed an audit of the Section

8 Housing Choice Voucher and low-rent

public housing programs of the Glens Falls

Housing Authority of Glens Falls, NY.

Our review focused on tenant selection and

continued occupancy activities and

whether such activities are being carried

out in accordance with requirements and

regulations of HUD.

Under the Section 8 Housing Choice

Voucher program, the Authority’s rental

assistance payments were not calculated

properly, and HQS violations were either

not detected or detected but not reported

properly by inspectors of the Authority.

Also, for both the Section 8 Housing Choice

Voucher and low-rent public housing

programs, the Authority’s admission

policies are not consistent with HUD

requirements, information on applications

and recertification forms was not properly

verified, and program participants’ annual

income was not properly determined. As

a result, HUD lacks assurance that more

than $700,000 was spent for units that were

decent, safe, and sanitary. We

recommended that HUD require the

Authority to implement procedures and

controls to correct the deficiencies and

weaknesses cited in the audit report. (Audit

Report: 2005-NY-1001)

Public Housing Authority Activities Public Housing Authority Activities

We completed an audit of the Housing

Authority of Maricopa County’s (Phoenix,

AZ) mixed finance development activities.

The objective of our review was to

determine whether the Authority followed

HUD regulations and requirements in the

development of its mixed finance projects

and related property disposition activities.

We found that even though the Authority

never obtained HUD approval of its two

projects, it went forward with them and

invested more than $7.2 million of its

Federal dollars in the projects. The

failure to follow HUD’s development

requirements has put this $7.2 million

investment at risk. Additionally, because

the Authority did not amend its annual

contributions contract to reflect the

changes resulting from the two projects, it

has received more than $500,000 of

operating subsidy and capital grant funds

to which it is not legally entitled. The report

recommended that the Authority work

with HUD to ensure the project/units meet

the legal and compliance requirements of

the mixed-finance development program,

including contributions contract and

declaration of trust amendments. If the

projects cannot be brought into compliance,

the Authority should be required to refund

the questioned costs to its low-income

public housing program using nonfederal

funds. (Audit Report: 2005-LA-1002)

At the request of HUD’s Hartford Field

Office, we completed an audit of selected

programs of the Waterbury, CT, Housing

Authority. The programs included

Public Housing Capital Fund

program; disposition of the South End

Project; Section 5(h) Public Housing

Homeownership program; and multifamily

projects owned, managed, and

administered by the Authority. The

primary purposes of our audit were to

determine whether the Authority

administered its selected programs

efficiently, effectively, and economically

and complied with the terms and

conditions of its annual contributions

contract, applicable laws, directives, and

regulations. The Authority did not
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 47

administer its programs in an efficient,

effective, and economical manner.

We concluded that the Authority’s

management controls were too weak to

ensure that it complied with the terms and

conditions of its annual contributions

contract, applicable laws, directives, and

regulations.

We recommended that HUD assure

the Authority reimburses the applicable

program more than $676,000 from

nonfederal funds for the inappropriate

expenses cited in this report, provides

documentation to support more than

$850,000 for the unsupported funds cited

in this report or reimburses the applicable

program from nonfederal funds,

recaptures more than $2.3 million in

program funds not used, and implements

procedures and controls to correct the

weaknesses cited in the report. (Audit

Report: 2005-BO-1001)

We audited Boulder, CO, County

Housing Authority. Our audit objectives

were to determine the effectiveness of the

controls over and accounting for the receipt

and use of HUD funds, evaluate the

effectiveness of the controls over HUDfunded personnel functions, and determine

the effectiveness of HUD-funded tenant

eligibility and certification procedures and

evaluate controls over tenant rent

subsidies.

The Authority did not properly use

HUD funds, which resulted in at least

$433,000 in ineligible and $123,000 in

unsupported costs. The internal controls

over and procedures for accounting

functions were inadequate and used

inappropriate accounting practices. We

determined that the personnel functions

performed by Authority staff were

effectively completed and documented.

Also, the Authority had implemented

effective controls over the tenant eligibility,

certification procedures, and tenant rent

subsidy functions and had complete, wellmaintained tenant files and rent subsidy

documentation.

We recommended repayment to the

Authority’s program accounts for the

ineligible costs and any of the unsupported

costs for which adequate supporting

documentation could not be provided. We

also recommended changes to accounting

controls and procedures to ensure

compliance with HUD’s requirements and

accounting principles. (Audit Report:

2005-DE-1002)

We audited the activities of the

Stockton, CA, Housing Authority of the

County of San Joaquin to determine

whether the Authority (1) used low-rent

housing program funds for non-low-rent

housing program expenses and (2)

followed Federal requirements and its own

procurement policies and procedures. In

addition, we determined whether

allegations received in two complaints were

valid.

It was determined that the Authority

improperly awarded more than $3.3 million

in contracts for goods and services. We

attribute this to the Authority’s

decentralized procurement process, which

allowed department managers to procure

goods and services without following

Federal regulations and its own adopted

policies. The Authority misused more than

$5.5 million in low-rent housing program

funds to pay for its non-low-rent housing

program expenses. We attribute the

Authority’s misuse of low-rent housing

program funds to poor management

decisions, as well as the lack of adequate

controls in place to safeguard low-rent

housing funds. We validated the primary
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 48

allegations in two complaints and determined

that the Authority’s former Executive

Director awarded consulting contracts to

what appeared to be friends or colleagues.

We recommended that HUD require the

Authority to terminate all current legal and

security services contracts and issue new

requests for proposal, establish a centralized

procurement department, cease the practice

of using low-rent housing funds to pay for

non-low-rent housing purchases and

expenses, reimburse the low-rent housing

program more than $154,000 from

nonfederal funds in accrued interest for

misusing more than $5.5 million in low-rent

housing program funds, reimburse the lowrent housing program $518,559 from

nonfederal funds for ineligible and

unsupported costs incurred by its non-lowrent housing programs, and establish better

controls to ensure that low-rent housing

program funds are used only for that

program’s related expenditures. (Audit

Report: 2005-LA-1001)

We completed an audit of the Royal Oak

Township Housing Commission’s Public

Housing Program of Ferndale, MI. We

selected the Housing Commission for audit

based on two citizen complaints. The

complainants alleged that the Housing

Commission’s public housing units were in

poor physical condition, tenants were housed

contrary to HUD’s requirements, and public

housing funds were misspent.

The Housing Commission’s housing

units were in poor physical condition. A HUD

construction analyst inspected 32 statistically

selected housing units and identified 1,166

deficiencies that did not meet HUD’s uniform

physical condition standards and Federal

handicap accessibility requirements. The

Housing Commission also did not meet the

uniform Federal accessibility standards for

access and the required number of handicapaccessible housing units. HUD’s construction

analyst estimated that more than $5 million

in repairs and more than $192,000 for unit

renovations was needed to meet HUD’s

uniform physical condition standards and

Federal accessibility standards. The Housing

Commission allowed new tenants with

criminal convictions to be housed and did

not evict existing tenants with known

criminal convictions in violation of HUD’s

“one strike” policy. The Housing

Commission also inappropriately paid more

than $3,000 for travel expenses for its Board

attorney, and it approved approximately

$8,000 for a new project sign changing the

name of an existing project without HUD’s

prior approval.

We attributed these conditions to the

Housing Commission’s Board of

Commissioners not allowing its former

Executive Director to hire, evaluate, and fire

maintenance and administrative staff and

contractors in a timely manner without prior

Board approval. The Housing Commission’s

Board also disagreed with HUD’s

requirements regarding its role and

authority.

We recommended that HUD require the

Housing Commission to (1) reimburse its

public housing program from nonfederal

funds for the inappropriately used monies

and (2) implement procedures and controls

to correct the weaknesses cited in this report.

We also recommended that HUD take strong

administrative action against the Housing

Commission’s Board of Commissioners for its

improper oversight of the Housing

Commission. (Audit Report: 2005-CH-1003)

We completed an audit of the Los

Angeles, CA, Housing Authority of the City

of Los Angeles’ procurement actions and

contract management as they relate to

activities of its resident management

corporations/resident advisory councils. We
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 49

Copyright, 2004. The Morning Call - Allentown, PA.

Reprinted with permission.

found significant problems with the

Authority’s procurement and management

of contracts it entered into with its

resident management corporations and

consultant. The report recommended that the

Authority refund or provide documentation

to support $1.8 million in ineligible and

questioned costs and take actions to

strengthen its procurement and contract

management processes. (Audit Report: 2005-

LA-1805)

Public Housing Authority Public Housing Authority

Activities with Related Activities with Related

Nonprofit/Nonfederal Entities Nonprofit/Nonfederal Entities

We performed an audit at the Lehigh

County Housing Authority of Emmaus, PA,

in response to a complaint. The complainants

alleged the Authority used HUD funds

improperly to benefit its affiliated nonfederal

entity known as Valley Housing

Development Corporation.

We found that the Authority improperly

used HUD funds to develop and support its

affiliated nonfederal entities. Further, our

audit identified an apparent conflict of

interest regarding the Executive Director’s

relationship with the Authority’s affiliated

nonfederal entities.

We recommended that HUD take

action, if appropriate, to declare the

Authority in substantial default of its

consolidated annual contributions contract

and direct the Authority to take immediate

action to remove its remaining encumbrances

of $130,000 in HUD assets. We also

recommended that HUD require the

Authority to recover approximately $13,000,

which it improperly provided its affiliated

entities, or repay the amount from nonfederal

funds. Lastly, we recommended that

HUD direct the Authority’s Board of

Commissioners to create internal controls to

prevent, detect, and resolve the improper

pledging of HUD assets and conflict of

interest situations. (Audit Report: 2005-PH1001)
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 50

Copyright, 2004. The Herald Sun - Durham, NC. Reprinted with permission.

We performed a second audit of the

Lehigh County Housing Authority in

response to a complaint in Emmaus, PA. Our

audit objectives were to determine whether

the Authority could adequately support its

use of HUD funds and whether it used HUD

funds to develop and support its affiliated

nonfederal entities.

Contrary to its annual contributions

contract, the Authority could not always

support expenditures made with HUD funds

and used HUD funds to develop and support

its affiliated nonfederal entities. The Authority

could not provide adequate documentation

to support $4 million in expenditures it made

from January 2001 to December 2003 using

HUD public housing and Section 8 program

funds. During the same period, the Authority

also used an estimated $726,000 in HUD

funds to pay salary and administrative costs

of its affiliated nonfederal entities.

We recommended that HUD require

the Authority to provide adequate

documentation to fully support its

disbursement of $4 million of HUD funds that

it could not properly support or reimburse

HUD from nonfederal sources. We also

recommended that HUD require the

Authority to implement an equitable method

of allocating administrative expenses to its

nonfederal entities and to reimburse more

than $726,000 to the public housing program

for ineligible salaries and administrative costs

it provided to its nonfederal entities. The

Authority acknowledged that it could not

adequately support costs during the audit

and did not have a certified costs allocation

plan. It also agreed to pass Board resolutions

approving new procedures needed to ensure

it properly supports and allocates costs.

(Audit Report: 2005-PH-1007)

We reviewed the Durham, NC,

Housing Authority’s financial operations and

procurement procedures. Our audit

objectives were to determine whether the

Authority’s misuse of funds jeopardized its

ability to operate its projects in a manner that

promotes serviceability, economy, efficiency,

and stability and whether the Authority

followed HUD procurement regulations.

The Authority jeopardized project

stability by misusing funds to subsidize

operations of Development Ventures, Inc.

(DVI), a nonprofit subsidiary. As of June 30,
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 51

2004, DVI owed $4.1 million to the

Authority. At its current rate of spending,

we estimated the Authority had enough

funds to continue operations for about 7

months.

The Authority inappropriately procured

about $6.9 million and cannot support

another $953,000 for goods and services. In

our opinion, the Authority can increase the

effectiveness of its procurement activities for

the $2.2 million in capital funds by developing

and implementing improved procurement

procedures that comply with procurement

regulations.

We recommended that HUD require the

Authority to (1) devise plans with multiple

strategies for resolving both its short-term and

long-term financial problems, (2) repay

approximately $6.9 million to its programs

from nonfederal funds, and (3) provide

support for another $953,000 of questionable

expenditures. (Audit Report: 2005-AT-1004)

As result of our audit review of the

Housing Authority of the City of Pittsburgh,

PA’s implementation of its Moving to Work

demonstration program, we found the

Authority was not able to develop and

implement an effective strategy to fully use

the freedom and flexibility of the Moving to

Work program. Since entering the program

in November 2000, the Authority has

accumulated more than $81.4 million in

HUD funds and an additional $21.2 million

in the first and final year of its agreement.

However, the Authority lacked the capacity

to implement all components of its Moving

to Work plan.

We recommended that HUD not extend

the Authority’s current agreement after it

expires on December 31, 2005, and develop

and implement a workable strategy to

transition the Authority out of the program.

This process will ensure that accumulated

and future reserve funds of more than $102

million will be used prudently and

expediently to improve the condition of the

Authority’s more than 6,700 low-rent

housing units and provide suitable housing

to nearly 3,000 households on its Section 8

and low-rent waiting lists. (Audit Report:

2005-PH-1008)

We reviewed the Housing Authority of

the City of Charleston, SC. We found the

Authority did not support its allocations of

more than $8.9 million and costs of more

than $6.6 million in salaries, wages, and

fringe benefits that were charged to the

Federal programs as required. Authority

officials believed their allocation method

complied with the requirements. However,

without support to substantiate the

allocations and costs of actual services

performed by personnel or some type of

quantifiable measures of employee effort, the

Authority may not have accurately charged

the Federal programs. In addition, the

Authority transferred $400,000 of its Section

8 administrative fee reserves to its Housing

Finance Agency. When the Authority

transferred the funds to its Housing Finance

Agency account, HUD lost visibility of the

funds and could not monitor the funds to

ensure they were properly spent.

We recommended that HUD require the

Authority to provide documentation to

justify the more than $8.9 million in allocated

costs and $6.6 million in costs without

supporting certifications and ensure the

Authority makes appropriate adjustments

to the various programs. Also, we

recommended that HUD require the

Authority to develop a reasonable method

for allocating its future costs to include daily

activity reports and semiannual

certifications for services performed by its

personnel. Further, we recommended that

HUD require the Authority to transfer the

$400,000 of Section 8 administrative fee
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 52

reserve funds back to the reserve account,

along with the interest earned on the funds.

(Audit Report: 2005-AT-1002)

We reviewed the Birmingham, AL,

Jefferson County Housing Authority’s

administration of its housing development

activities. Our primary objective was to

determine whether the Authority had

diverted or advanced resources subject to its

low-income housing annual contributions

contract or other low-income housing

agreements or regulations to the benefit of

the other entities without specific HUD

approval.

The Authority advanced more than

$771,000 and inappropriately used $396,000

to pay the expenses of its programs and

nonprofit entities, including affiliated

nonprofit corporations, in excess of the funds

the programs or entities had on deposit. These

actions occurred because the Authority did

not have adequate controls in place to

monitor the revolving fund account. For fiscal

years (FY) 2000 through 2003, the Authority

did not support $3.3 million in salary costs

allocated for Federal programs for employees

dividing their time among several programs.

We recommended that HUD require the

Authority to settle the more than $771,000

or current balance owed to the revolving fund

account and repay the $396,000 balance. We

also recommended that HUD require the

Authority to provide documentation to

justify the $3.3 million in salary charged to

Federal programs from 2000 through 2003.

(Audit Report: 2005-AT-1006)

We reviewed the Carrollton, GA,

Housing Authority of the City of Carrollton’s

administration of its housing development

activities as part of our audit of HUD’s

oversight of PHA development activities with

related nonprofit entities.

The Authority advanced more than

$316,000 to its private housing program, Little

River Management, without specific HUD

approval. The advances were made because

the private housing program did not have

sufficient income to pay its obligations and

reimburse the Authority. The Authority

repaid the HUD program approximately

$249,000, the amount owed at May 31, 2004;

however, it continued to advance funds. As

of May 31, 2004, another $43,000 had been

advanced. The repayment included the

cash payment and an adjustment of

approximately $121,000 that the Authority

did not support. As a result, more than

$359,000 in ineligible advances reduced

funds for its public housing program needed

to serve its low-income residents. In addition,

the Authority failed to realize approximately

$15,000 in interest income because the funds

were not available for investment. The

Authority did not support its allocation of

administrative and maintenance salary costs

with activity reports or equivalent

documentation as required. The Authority

also executed five loan agreements for the

purchase of private property that put more

than $1.4 million of its HUD funds at risk.

The agreements included set-off provisions

that allowed the lender to withdraw the

HUD funds on deposit if the loan payments

were not made.

We recommended that HUD require the

Authority to repay more than $43,000 in

funds that were advanced and $15,000 in

interest lost from nonfederal sources, ensure

that no further advances are made without

prior HUD approval, and provide

documentation to support the adjustment of

more than $120,000 or reimburse its public

housing program. We also recommended

that HUD require the Authority to take

immediate action to terminate the agreements

that have put more than $1.4 million in HUD

funds at risk by either seeking a waiver of

the set-off provisions, closing its accounts with
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 53

the local lender, or refinancing the loans with

another lender. (Audit Report: 2005-AT1001)

In Huntington, WV, we performed an

audit at the Huntington Housing Authority

in response to a complaint. Our audit

objective was to determine whether the

Authority properly used HUD funds to

develop and support its affiliated nonfederal

entities. While the Authority was generally

prudent and did not guarantee debt of its

affiliated nonfederal entities, it sometimes

improperly used HUD funds to develop and

support its nonfederal entities. It did not

allocate all relevant salary costs to its affiliated

Housing Development Corporation,

contrary to its annual contributions contract.

As a result, from July 1999 to June 2004, the

Authority improperly paid salaries estimated

at $320,000 from Federal funds for work its

employees performed for this nonfederal

entity. We also estimated that in the future,

the Authority will be able to better use more

than $46,000 annually by properly

accounting for and allocating the work its

employees perform for its nonfederal entities.

We recommended that HUD require the

Authority to recover more than $320,000

from the Housing Development Corporation

for employee salary expenses not properly

allocated to the nonfederal entity or repay it

from nonfederal funds. We also

recommended that the Authority develop a

reasonable method for allocating its future

cost to its nonfederal entities, thereby putting

more than $46,000 to better use annually.

(Audit Report: 2005-PH-1002)

In Marysville, WA, we performed an

audit of the Tulalip Tribes Housing

Authority’s block grant to determine whether

the Authority established and operated its

program in accordance with HUD

requirements for financial management

systems.

We found the Authority cannot account

for more than $5.1 million in Indian Housing

Block Grant funds. The Authority’s financial

management system was unauditable

because the financial statements, general

ledger, and subsidiary ledgers for FY 1999

through 2001 are not complete and accurate

as required. Further, the Authority did not

obtain the necessary financial statement

audits for FY 2002 and 2003. As a result, the

Authority cannot provide reasonable

assurance that its Indian Housing Block Grant

funds helped the intended beneficiaries. In

our opinion, this occurred because the Board

of Commissioners and the Authority’s

management did not have effective control

of Authority accounting operations.

We recommended that HUD take

administrative action to ensure the Authority

complies with program requirements and

require the Authority to return any Indian

Housing Block Grant funds not used for

authorized purposes. (Audit Report: 2005-

SE-1001)

Corrective Action Verification Corrective Action Verification

Review

We performed a corrective action

verification review of the actions the

Baltimore, MD, Housing Authority of

Baltimore City had taken to implement key

recommendations cited in OIG Audit

Report 2001-PH-1003, issued March 28,

2001. As of September 22, 2004, HUD

determined the Authority had fully

implemented final actions on all of our

prior recommendations. Our overall

objective was to determine whether the

Authority implemented our key audit

recommendations and corrected the

deficiencies we identified in our previous

audit report.
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 54

The Authority had not yet

fully implemented all key OIG

recommendations. This resulted in part

because the severity of the problems in the

Section 8 program required more time to

correct than the Authority had originally

anticipated. However, the delays the

Authority experienced in implementing its

management information system adversely

affected its ability to fully implement the other

recommendations. We found the Authority

had not yet fully developed and implemented

all the financial system controls necessary to

ensure its books and records were maintained

in accordance with HUD requirements and

adequate procedures were followed to fully

budget and use its available Section 8

resources. Although HUD had closed these

recommendations, we found the Authority

was still developing and implementing

appropriate processes to address and resolve

these remaining issues.

Based on our review, we reopened

recommendations that addressed the

Authority’s need to improve its financial

system controls and key components over its

administration of the Section 8 program. We

also recommended that HUD immediately

recapture $25.1 million of the $38 million in

the Authority’s reserve account and require

the Authority to repay or reimburse the

program for more than $70,000 of ineligible

expenses. (Audit Report: 2005-PH-1004)

PHA Pension Plan Forfeiture PHA Pension Plan Forfeiture

Policy

The objective of this internal audit was

to determine the amount of funds that could

be put to better use if HUD changes its policy

and requires PHAs with private defined

contribution pension plans to return pension

plan forfeitures to the benefit of contributing

Federal programs. HUD’s current policy

allows housing authorities with defined

contribution pension plans to reallocate

forfeitures of separating employees to other

plan participants or to reduce employer

contributions or administrative costs. The

policy that permits authorities to allocate

forfeitures to other plan participants is

inconsistent with the Office of Management

and Budget’s (OMB) cost principles for State,

local, and Indian Tribal Governments, OMB

Circular A-87. The cost principles require the

Federal Government to receive an equitable

share of any previously allowed pension costs

that reverts or inures to the governmental

unit. We believe that HUD could put about

$5,300,000per year to better use if it requires

housing authorities to refund or credit

pension plan forfeitures to the Federal

housing programs that incurred the original

pension costs.

We recommended that the Office of

Public and Indian Housing process a policy

revision and promptly distribute the policy

to the housing authorities. (Audit Report:

2005-FW-0001)
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 55

Investigations Investigations Investigations

During this reporting period, the OIG

opened 389 investigation cases and closed

253 cases in the public and Indian housing

program area. Judicial action taken on

these cases during the period included

$79,673,692 in investigative recoveries,

$20,679,282 in funds put to better use,

590 indictments/informations, 284

convictions/pleas/pretrial diversions, 887

administrative actions, 9 civil actions, 15

personnel actions, and 1,419 arrests.

The results of our more significant

investigations are described below. Some

of the investigations discussed in this report

were conducted by OIG, while others were

conducted jointly with Federal, State, and

local law enforcement agencies.

PHA Management and Program PHA Management and Program

Officials/Employees Officials/Employees

In Springfield, MA, a Federal grand

jury in Springfield, MA, returned a

superseding indictment in which Raymond

Asselin, Sr., and Arthur Sotirion (the former

Executive Director and Deputy Executive

Director, Springfield Housing Authority)

were charged with four additional counts

of bribery and John Spano (vendor) was

charged with one additional count of

bribery on January 11, 2005. Raymond

Asselin, Sr., was charged with two

additional counts of witness tampering;

Raymond Asselin, Sr., Raymond Asselin,

Jr. (son), Maria Serrazina (daughter), James

Asselin (son), and Peter Davis (vendor)

were charged with five additional counts

of obstruction of justice; Raymond Asselin

Sr., Janet Asselin (wife), Arthur Sotirion,

and Paul Bannick (vendor) were each

charged with five counts of filing false

income tax returns. A criminal forfeiture

was also filed against the following

individuals: (1) Raymond Asselin, Sr., and

Janet Asselin against property located at

115 Mayfair Avenue, Springfield, MA;

property at 56 Stage Island Road,

Chatham, MA (Cape Cod); a 2002 BMW;

a 23-foot Chaparral boat; and $290,650 in

U.S. currency seized during the execution

of Federal search warrants at the house of

Raymond Asselin, Sr., Janet Asselin, and

Maria Serrazina; (2) Arthur Sotirion for

property located at 811 Dickinson Street,

Springfield, MA; undeveloped property

located on Little Diamond Island, ME; and

a time-share located in Aruba; (3)

Christopher Asselin (son) and Merylina

Asselin (daughter-in-law) for property

located at 184 Bowles Park Ext.,

Springfield, MA; (4) James Asselin for

property located at 16 Dwight St.,

Springfield, MA; (5) Joseph Asselin (son)

and Melinda Asselin (daughter-in-law) for

Chart 3.3: PIH Recoveries Chart 3.3: PIH Recoveries

Section 8

96%

Other

4%

Total Recoveries: $79,673,692

Chart 3.4: PIH Funds Put to Better Use

Embezzlement

10%

Contract

Fraud

10%

Other

3%

Section 8

40%

Total: $20,679,282

False

Statements

7%

PHA Fraud

6%

Fugitive

Felon Initiative

10%

Non-HUD

Employee

14%
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 56

property located at 518 Old Farm Road,

Amherst, MA; and (6) Maria Serrazina for

property located at 140 Sallie Circle,

Ludlow, MA. All defendants appeared in

court on January 19, 2005 to plead not

guilty to the charges outlined in the

superseding indictment.

In Pittsburgh, PA, defendant Patti

Braun, former accountant for the HUDfunded Clarion County Housing Authority

(CCHA), was sentenced in Federal Court,

Western District of Pennsylvania, based on

her previous admission of guilt to stealing

funds from the CCHA. Braun was ordered

imprisoned for 18 months, to be followed

by 3 years probation. She was also ordered

to repay the CCHA $136,396. The

investigation revealed that over at least a

10-year period, Braun embezzled funds by

writing checks payable to herself, which

she concealed by altering the electronic

check register to reflect that the checks had

been made payable to legitimate CCHA

vendors.

In Wamego, KS, Sheila L. Spangler, a

former Executive Director of the Wamego

Housing Authority (WHA), was sentenced

to 6 months confinement and 60 months

probation and ordered to pay $33,000 in

Copyright, 2004. The Republican - Springfield, MA. Reprinted with permission.

restitution after she pled guilty to one count

of a two-count indictment in the U.S.

District Court of Kansas, Topeka, KS.

Spangler was convicted for her intent to

defraud in using one or more unauthorized

access devices for using a U.S. Bank Visa

business card, issued in the name of the

WHA, to obtain goods and services for her

personal use. Spangler submitted a letter

of resignation to the WHA Board on March

18, 2003, and immediately moved to

Arizona and became employed at the

Maricopa County Housing Authority. The

investigation revealed that the WHA was

not receiving mail after Spangler moved to

Arizona. A check with the postmaster

revealed that Spangler had put a hold on

the mail before her departure and was

having the mail forwarded to her address

in Arizona. The credit card fraud was

discovered after the mail delivery to the

WHA had resumed. The WHA Board of

Commissioners audited the financial

records and discovered that Spangler

misused a WHA credit card issued in the

name of a former Executive Director and

two additional cards, the first under the

name of a tenant in care of the WHA and

second under Sheila Spangler in care of the

WHA. This misuse resulted in $33,000 in

losses.
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 57

In Billings, MT, a Federal grand jury

for the District of Montana, returned a

four-count indictment charging Dwight

Stewart, Wayne Other Medicine, and Billie

Tall Bull with one count each of converting

property valued at $5,000 or more by

falsifying or inflating travel expenses or

taking payroll advances. In addition, Crow

Tribal Housing Authority (CTHA) funds

were used for personal purposes that

included a trip to Disney World. The

indictment also indicated that the CTHA

lost more than $10,000 as a result of each

of the defendants’ conduct and that each

defendant abused a position of trust. The

fourth count of the indictment charged

each of the defendants with embezzling,

stealing, and converting to their use or the

use of another and willfully misapplying

or allowing to be misapplied property

belonging to the CTHA in violation of Title

18 U.S.C. § 1163, Embezzlement and Theft

from an Indian Tribal Organization.

In Newark, NJ, Miladys Gomez, a

former Assistant Administrator for the

Perth Amboy Housing Authority,

appeared in United States District Court.

Gomez pled guilty to four counts of theft

of Section 8 funds (theft from programs

receiving Federal funds). As Assistant

Administrator for the Section 8 program

for the Perth Amboy Housing Authority,

Gomez was responsible for the printing and

issuing of housing subsidy checks to

landlords on behalf of Section 8 recipients.

She also secured and reviewed application

forms submitted by prospective

participants in the Section 8 program and

updated computer records for the

program. Between April 1, 2000, and

January 23, 2004, Gomez used her access

to the checks to steal $407,603 in Section 8

funds from the Perth Amboy Housing

Authority as well as using these checks for

her own personal use.

Following their August 31 arrest, 10

employees of the Cuyahoga Metropolitan

Housing Authority (CMHA), Cleveland,

OH, were indicted for various State felony

charges in Cuyahoga County Common

Pleas Court, Cleveland, OH. Lenard

McClain, Supervisor, was indicted for theft

in the office, tampering with records, and

bribery. Employees Gerald Ford, John

Tsolakis, and Ray Ellington were charged

in a conspiracy to commit theft in office

and tampering with records. Employees

Kevin Martin, James Jones, Darrel

Sampson, Alvin Roan, Keith Smith, and

Leon David were also charged with felony

counts of tampering with records and

misuse of a credit card. The investigation

focused on payroll and overtime fraud,

specifically, being paid for working on

personal residences during regular work

hours and employees stealing CMHA

materials and using agency gas credit cards

for personal use, resulting in a total loss of

approximately $20,000.

In Orlando, FL, Federal Court, Middle

District of Florida, Courtney Escoffery,

former Quality Assurance Director with the

Orlando Housing Authority (OHA), was

sentenced to 30 months incarceration and

3 years supervised release and was ordered

to pay restitution of $205,185 as a result of

his guilty plea to one count of conspiracy

to embezzle funds.

The investigation disclosed that

Escoffery and conspirators Randy Donawa

and Kisha Stewart, former OHA

employees, used their positions to divert

approximately $424,853 from the OHA

Section 8 funds by changing landlord bank

routing codes in the OHA internal

computer system. The investigation

revealed that Escoffery and Donawa used

stolen funds as seed money to start a

property management company and
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HUD’s Public and Indian Housing Programs 58

purchased three condominiums they

intended to rent to Section 8 tenants.

Indicted in the Middle District of

Florida on 42 counts of conspiracy to

embezzle, embezzlement, theft concerning

programs receiving Federal funds, and

money laundering were Leslie Tourner,

Brian Tourner, and Shawanna Glover. The

Tourners and Glover were friends of

Stewart and Donawa, who diverted

approximately $219,668 in Federal funds

into the Tourners’ and Glover’s bank

accounts. Also indicted in the Middle

District of Florida on eight counts of

conspiracy to embezzle, embezzlement,

theft concerning programs receiving

Federal funds, and wire fraud was Samuel

Davis. Davis, the brother-in-law of

Escoffery, conspired with Escoffery and

Donawa to divert $86,000 in Section 8

funds from the OHA, which were

purportedly being returned to the New

York Housing Authority when, in fact,

they were being wired to Davis’ personal

bank account. Previously indicted in the

Middle District of Florida were Randy

Donawa and Kisha Stewart.

In Maquoketa, IA, defendant Miriam

Brown, former Executive Director of the

Maquoketa Housing Authority, was

charged in an information in Federal Court,

Northern District of Iowa, with embezzling

more than $50,000 from HUD. Defendant

Brown allegedly embezzled approximately

$64,000 in a 3-year period by reimbursing

herself for expenses that did not exist and

overpaying herself with unapproved bonus

and salary checks.

Marysol Morales, former Section 8

Coordinator, Avon, MA, Housing

Authority was indicted by a Federal grand

jury in U.S. District Court, Boston, MA, on

three counts of bribery. Morales was

arrested pursuant to a Federal arrest

warrant as a result of the indictment and

Copyright, 2005. The Boston Globe - Boston, MA. Reprinted with permission.
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 59

was being held pending a detention

hearing. These actions are the result of an

ongoing HUD-OIG investigation, which

revealed that Morales had solicited bribes

from three Section 8 applicants ranging

from $2,600 to $6,000. It is also alleged that

Morales issued more than 90 Section 8

vouchers that should not have been issued,

causing the housing authority to terminate

more than 90 families from the Section 8

program. The 90 fraudulent Section 8

vouchers were valued at more than $1.3

million, which caused the Avon Housing

Authority to pay in excess of $50,000 per

month in housing assistance payments that

it did not have. As a result of the

allegations, the Avon Housing Authority

has also attached a lien against Morales’

personal residence, located in Brockton,

MA, in the amount of $350,000, since she

had placed the property up for sale.

Morales was fired from her job at the Avon

Housing Authority on December 30, 2004.

In Gary, IN, a criminal complaint was

filed in the Superior Court of Lake County,

Crown Point, IN, against Yolanda Denise

Hughes, the Payroll Coordinator for the

Gary Housing Authority, for her role in a

scheme to embezzle funds from the

authority. According to the complaint,

Hughes was alleged to have used her

position in the Payroll Department to

“pad” her paychecks over and above her

salary for approximately $45,000 during

the years 2003 and 2004. Moreover, the

complaint alleged that Hughes used these

funds for the purchase of clothing, jewelry,

and a second vehicle.

Violation of Tenant Rights Violation of Tenant Rights

In Skowhegan, ME, three civil

administrative complaints were filed with

HUD’s Administrative Law Judge against

Colin Quinn, Stephen McDaniel, and Van

Ames, landlords of multiple market rent

and Section 8 properties. The three civil

administrative complaints were filed

because the defendants repeatedly violated

The Lead Hazard Reduction Act by failing

to make required lead paint disclosures in

at least 28 transactions, thereby preventing

tenants from taking informed measures to

reduce or eliminate their exposure to leadbased paint. The following civil penalties

were proposed against the three landlords:

Quinn $638,000, McDaniel $176,000, and

Van Ames $132,000.

In Minneapolis, MN, the District of

Minnesota, the U.S. Attorney’s Office, Civil

Division, and David Ray Beaudet, landlord,

reached a settlement, in which Beaudet

agreed to pay $425,000. This followed an

investigation into allegations that the

conditions of the lease for various females

were based on their granting him sexual

favors. Beaudet owns 36 properties in the

St. Paul, MN area, more than half of which

are subsidized by Section 8 payments from

the St. Paul Housing Authority.

Investigations Involving Public Investigations Involving Public

Officials Officials

In Boston, MA, Hans FretthlorVerduzco and Jesus Oritiz Durazo were

arrested at the Bunker Hill Public Housing

Development in Boston, MA. FretthlorVerduzco was charged with offering bribes

to a public official, cocaine trafficking in a

school zone, and conspiracy to violate drug

laws. Durazo was charged with cocaine

trafficking in a school zone and conspiracy

to violate drug laws. Seized during this

arrest was one kilogram of cocaine. Also,

a State search warrant was executed at

Fretthlor-Verduzco’s apartment located in

the Harbor Point Housing Development.

Twenty-six pounds of marijuana and

$4,300 in U.S. currency were seized during
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HUD’s Public and Indian Housing Programs 60

the search. The arrests and indictment were

the result of an incident in January 2004

when Hans A. Fretthlor-Verduzco

approached two Special Police Officers

from the Harbor Point Housing

Development Public Safety Department

who were paid with HUD Drug

Elimination Grants funds. FretthlorVerduzco offered cash bribes to the Special

Police Officers if they agreed to protect

Fretthlor-Verduzco from other police while

Fretthlor-Verduzco sold cocaine and

marijuana in and around the Harbor Point

Housing Development, a Boston public

housing development. The two Special

Police Officers informed HUD-OIG and the

Massachusetts State Police of FretthlorVerduzco’s bribe attempt, and an

investigation was initiated.

Grand Theft/False Statements/ Grand Theft/False Statements/

Conspiracy Conspiracy

In Syracuse, NY, Andre Parker,

President and Owner of Parker

Environmental Management Group, Inc.,

appeared in Federal Court, Northern

District of New York, and was sentenced

to 48 months in prison. Parker

Environmental Management Group, Inc.,

was also sentenced to 2 years of probation.

Parker and Parker Environmental

Management Group were found guilty of

22 felony counts for conspiracy to violate

the Clean Air Act, conspiracy to violate the

Superfund Act, mail fraud, and making

false claims. In 2001, Parker directed

employees of Parker Environmental

Management Group to illegally remove

asbestos from 31 buildings of the

Plattsburgh Housing Authority. Thereafter,

Parker’s employees dumped hundreds

of bags of asbestos throughout the

City of Plattsburgh. Previously, Griffin

International, Inc., pled guilty to

conspiracy to violate the Clean Air Act and

mail fraud. Griffin International provides

project design, project monitoring and air

monitoring to firms performing asbestos

abatement. The charges arose from an

illegal agreement between Griffin

International and Parker Environmental

Management Group. Griffin took

fraudulent air monitoring samples and

permitted Parker Environmental to

perform illegal asbestos work practices

during an abatement project at the

Plattsburgh Housing Authority. Griffin

International was sentenced to 3 years

probation and was ordered to pay a fine

totaling $199,302.48 in U.S. District

Court, Northern District of New York.

Also, Felipe Escobar, Project

Supervisor for Parker Environmental, was

sentenced to 9 months of home

confinement and 4 years of supervised

release and was ordered to pay restitution

of $200,000 to the Plattsburgh Housing

Authority. He was sentenced based on his

plea to a one-count information for

conspiring to violate the Clean Air Act and

the Comprehensive Environmental

Response, Compensation, and Liability

Act. Escobar illegally removed and

disposed of asbestos-containing material

from buildings of the Plattsburgh Housing

Authority.

In Hamilton, OH, Geovanny Cuevas,

a former Butler Metropolitan Housing

Authority (BMHA) tenant and employee,

was sentenced to 6 months imprisonment,

3 years probation, and court ordered

restitution in the amount of $1,000,

following her conviction at a jury trial in

September 2004. During that trial, Cuevas

was found guilty of grand theft in the

Hamilton County Court of Common Pleas

for her role in receiving approximately
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HUD’s Public and Indian Housing Programs 61

$17,000 in overpaid housing subsidies

based on allegations that she maintained

a subsidized apartment in Brooklyn, NY,

while also occupying the unit in Ohio

under the BMHA.

In Oakland, CA, Shamia Nears, a

former Section 8 tenant with the Oakland

Housing Authority (OHA), and her

mother, Doris White, were sentenced in the

State of California Superior Court for their

scheme to defraud the Alameda County

Social Services, CalWORKS, Child Care

Links, and the OHA through false

representations that Nears had three

dependent children when she had none.

In September 2004, Nears and White pled

guilty to six felony counts of aid by

misrepresentation, perjury, conspiracy to

commit a crime, and grand theft. In light

of her conviction, Nears was sentenced to

serve 16 months in prison and 5 years of

parole and ordered to pay $123,361 in

restitution, of which $17,266 was due to

the OHA. White, who was an abettor in

this matter, received 30 days in county jail.

In St. Louis, MO, Cedric Williams was

sentenced in Federal Court to serve 12

months in prison and ordered to pay

$118,665 in restitution. Williams previously

pled guilty to conspiracy to commit wire

fraud. Williams used his Section 8 residence

to make credit card transactions using

stolen credit card numbers. He

accomplished this by starting fictitious

businesses, opening business accounts, and

using a credit card reader to enter stolen

credit card numbers, which resulted in

credits to his business accounts. In the same

investigation, Mark Bateman was

sentenced to serve 18 months in prison and

ordered to pay $118,665 in restitution.

Bateman conspired with Williams to

commit wire fraud, as described above.

In Chicago, IL, the Circuit Court of

Cook County, Barbara O Kennard, Section

8 tenant, pled guilty to a class two felony

following the information. The information

charged O Kennard of Hazel Crest, IL,

with theft by deception in violation of

Illinois Compiled Statutes, chapter 720,

section 5/16-1(a)(2). On the same day, O

Kennard was sentenced to 30 months

probation, restitution in the amount of

$40,150 payable at a rate of $200 per

month, and court costs of $179.

O Kennard accepted responsibility for

the scheme, in which she occupied a newly

purchased home as a Section 8 tenant

despite the fact that she co-owned the

property with her sister who acted as the

landlord. Further, O Kennard listed her

daughter as an unemployed family

member residing in the home when, in fact,

she did not reside in the home, was

employed, and received her own housing

assistance out of De Kalb, IL. The total loss

to HUD is $40,150.

In Boston, MA, a civil complaint was

filed by the U.S. Attorney’s Office, District

of Massachusetts, under the False Claims

Act, against Delia J. Baez, a former public

housing tenant who had resided at the

Boston Housing Authority (BHA)

development known as Franklin Field. The

complaint alleges that Baez obtained

Federal financial assistance designed for

the indigent through false claims as part

of the fraud.

The complaint alleges that Baez

applied for and received an apartment at

Franklin Field, income assistance and foods

stamps from the Massachusetts Division of

Transitional Assistance, and Medicaid, all

funded in whole or in part by the Federal

Government. According to the complaint,

Baez received more than $63,000 in such

assistance. To obtain these benefits, Baez
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HUD’s Public and Indian Housing Programs 62

represented on written applications and

certifications on numerous occasions that

she had little income and that she had no

assets when she had substantial assets,

including commercial real estate in Jamaica

Plain, MA (Mi Tierra Restaurant), and a

multifamily residence in Roslindale, MA.

On August 13, 2002, the U.S. Customs

and Border Patrol service seized $62,552

from Baez at Logan Airport in Boston, MA,

while she was attempting to leave the

United States by airplane. Baez admitted

that she was the owner of the money. In

addition, Baez maintained a bank account

containing large sums of money and has

admitted to receiving a substantial monthly

income. The civil complaint covers the

period 2001 through 2004 and seeks treble

damages and civil penalties.

In Farmington, UT, Henry Ross and

Theresa Holt, who are husband and wife,

were sentenced by a Davis County Judge

for Second District Court to each pay a fine

of $500, plus restitution amounting to

$17,972. The judge ordered both

defendants to serve 36 months of probation

after they each complete a specified period

of home detention. Ross was ordered to

serve 90 days of home detention while his

wife, Holt, was ordered to serve 45 days of

home detention. This sentencing was the

result of a previous guilty plea to one count

of attempted communications fraud, a

third degree felony, resulting from their

failure to report their true household

income to the Davis County Housing

Authority. This failure to report resulted

in a $17,972 overpayment of Section 8

subsidies on their behalf.

In Ft. Lauderdale, FL, Arjunen Apana

was sentenced to 36 months supervised

release and ordered to pay restitution in

the amount of $16,354 in addition to a

$2,000 fine. Apana previously pled guilty

to one count of conspiracy before Federal

Magistrate Judge James Cohn (Southern

District of Florida - Fort Lauderdale, FL).

This sentencing was related to a 30-count

Federal grand jury indictment, which

charged Apana and seven coconspirators

with conspiring to steal Federal funds

through the Pompano Beach Housing

Authority.

In the same case, in Ft. Lauderdale,

FL, Debbie Nelson was sentenced to 60

months supervised release and ordered to

pay restitution in the amount of $24,855

in addition to a $200 special assessment fee.

Nelson previously pled guilty to one count

of conspiracy and one count of money

laundering before Federal Magistrate Judge

James Cohn (Southern District of Florida -

Fort Lauderdale, FL). This sentencing was

related to a two-count information that

charged Nelson and two coconspirators

with conspiring to steal Federal funds

through the Pompano Beach Housing

Authority. Also, in the same case, Nirmala

Chandradat was sentenced to 36 months

supervised release and ordered to pay

restitution in the amount of $16,004 in

addition to a $100 fine. Chandradat

previously pled guilty to one count of

conspiracy. This sentencing was related to

a 30-count Federal grand jury indictment,

which charged Chandradat and seven

coconspirators with conspiring to steal

Federal funds through the Pompano Beach

Housing Authority.

In Kensington, NH, Amy McPherson,

former Section 8 tenant, pled guilty to a

four-count information on February 28,

2005, charging McPherson with making

false statements to the U.S. Government.

The investigation disclosed that

McPherson had ownership interest in the

Section 8 property for which she was

receiving her Section 8 rental subsidy. The
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HUD’s Public and Indian Housing Programs 63

first two counts of the information relate

to HUD, the third to the U.S. Department

of Health and Human Services (HHS), and

the fourth to the U.S. Department of

Agriculture (USDA). McPherson agreed to

make restitution to the United States in the

amount of $98,854, but for the purposes of

the criminal restitution, the amount

ordered by the court should not exceed

$67,547. The $67,547 is based upon the

following loss amounts: $38,765 (HUD),

$5,756 (USDA), and $23,026 (HHS).

In St. Louis, MO, Sharonda Jenkins

signed a pretrial diversion agreement in the

U.S. District Court for Eastern Missouri in

which she admitted to making false

statements to the St. Louis Housing

Authority to receive excess rental

assistance payments. Jenkins had failed to

report her income since 2002. Jenkins

agreed to make restitution in the amount

of $15,863.

In San Juan, PR, defendant Eneida

Soto-Rodriguez entered into an agreement

to reimburse the Department of Housing

for the Municipality of San Juan $14,064.

During the years 1995 to 2000, SotoRodriguez falsely stated no employment

income on her annual certifications to

qualify for a Section 8 rent subsidy. Also in

this case defendant Jeannie FuentesCarmona entered into an agreement to

reimburse the Department of Housing for

the Municipality of San Juan $19,910.

During the years 1994 to 2001, FuentesCarmona falsely stated no employment

income on her annual certifications to

qualify for a Section 8 rent subsidy.

In the Circuit Court of Cook County,

Chicago, IL, Allison Waters, Section 8

landlord, and Patricia Flowers, Section 8

tenant, pled guilty to one felony count

following their January 2004 indictment.

They were each sentenced to 300 hours of

community service. Waters and Flowers

accepted responsibility for a scheme, in

which they occupied a newly purchased

home as co-occupants in spite of the fact

they were both tenant and landlord. They

used another coconspirator, Preston

Handcox, and his residence as a drop box

for the housing assistance payments.

Waters and Flowers would accept checks

made out to Handcox from the housing

authority and deposit them in their joint

bank account. The total loss in this case is

$48,000.

In the Bronx, NY, Karen Vidal was

arrested based upon a Federal arrest

warrant that was issued by the U.S. District

Court, Southern District of New York, for

two counts of theft of government funds.

During this investigation, the Yonkers

Municipal Housing Authority observed

that Section 8 checks for their tenant

(Vidal) were being mailed to Vidal’s mother

and not the Section 8 landlord. Starting in

October 2002 and continuing through

April 2004, Vidal received approximately

$11,745 in Section 8 benefits. HUD-OIG

determined that Vidal received her Section

8 benefits through the 9/11 Victim’s

Emergency Help and Housing, which was

established to assist individuals adversely

affected by the 9/11 terrorist attacks. Vidal

produced false documents to show that she

lost her job due to the 9/11 terrorist attacks.

The investigation determined that Vidal left

her employment before September 11,

2001, making her ineligible for the Section

8 vouchers that she received. Additionally,

the Social Security Administration (SSA)

OIG determined that Vidal fraudulently

received approximately $28,235 in Social

Security disability benefits for her daughter.

In Lucas County, Toledo, OH, Court

of Common Pleas, Alfred Darah, Jr., and

Alice Faye Darah pled guilty to one count

of attempted grand theft. Alfred Darah, a
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HUD’s Public and Indian Housing Programs 64

Section 8 landlord, accepted responsibility

for renting his subsidized unit to his mother

and failing to disclose her true relationship

to him. He purportedly continued to collect

housing assistance payments on the vacant

unit after she moved out. Finally, Darah

admitted to subleasing the unit and

simultaneously collecting a Lucas County

Housing Authority payment and a market

rate rent check after his mother moved out.

The approximate overpayment of behalf on

Alfred Darah is $7,100. Alice Darah

accepted responsibility for falsely certifying

to SSA from 1995 through 2004 that she

was separated from Alfred while they were

occupying the same residence. The

approximate overpayment on behalf of

Alice Darah to SSA is $40,510.

In Norristown, PA, former Section 8

tenant Anndria Smith Watkins pled guilty

in State Superior Court to defrauding the

federally funded Section 8 rental assistance

program, as administered by the

Montgomery County (PA) Housing

Authority (MCHA), and also to defrauding

the Colonia School District through theft

of services. A sentencing date has not been

determined. The investigation disclosed

that from 1995 through 2002, the

defendant failed to disclose the residency

and income of her husband on annual

recertification forms she furnished to

MCHA and in so doing, obtained the

benefit of approximately $39,000 in rental

assistance to which the family was not

entitled. Further, during this time, they

purchased and moved into a home but

continued to send their three children

outside of the proper school district in

violation of State law, which amounted to

$102,000 in theft of services.

In Martinez, CA, the Superior Court

of California, County of Contra Costa, an

amended complaint was filed charging

Patricia Laverne Bryant with 25 counts of

violating the California Penal Code. The

charges consisted of grand theft, welfare

fraud, and perjury. The complaint

stemmed from an investigation, which

disclosed Bryant’s failure to report to the

Housing Authority of Pittsburg her

boyfriend’s residency in the HUDsubsidized unit and additional income

Bryant derived from monies intended for

a childcare provider. Bryant’s actions

resulted in a loss of $162,381, of which

$46,000 was un-entitled housing benefits.

Identity Theft Identity Theft Identity Theft

Defendant Jackie Morgan pled guilty

and was sentenced in Cuyahoga County,

Cleveland, OH, Court of Common Pleas.

Morgan pled guilty to identity theft,

tampering with records, aggravated theft,

possession of drugs, and trafficking in

drugs. Her sentence was 66 months

incarceration and restitution totaling

$132,162.

Morgan accepted responsibility for

receiving a public housing subsidy from the

New York City Housing Authority under

the name Jackie Davis while receiving

subsidy from the Cuyahoga Metropolitan

Housing Authority under the identity of

Jackie Morgan. Further, Morgan admitted

obtaining a Section 8 rental voucher from

CMHA under the name Jackie Morgan

while purchasing this same property under

the name Elizabeth Spencer for $126,900

and acting as the landlord for housing

assistance payments.

Morgan was originally arrested on

August 1, 2003, at her Section 8 residence

located at 4882 East 106th Street,

Cleveland, OH, under the Fugitive and

Felon Initiative. Morgan was arrested on

an outstanding warrant for possession of

drugs and/or preparation of drugs for sale,

and during the search, 100 pounds of
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HUD’s Public and Indian Housing Programs 65

marijuana, $103,000 in cash, and three

vehicles were seized.

Lydia Irma Iniguez of La Puente, CA,

a Section 8-assisted housing participant,

was arrested and charged with obtaining

aid by false statements. On September 27,

1998, Iniguez acquired title to a house

located in LaPuente, CA, using the name

Irma Cortez. Iniguez signed over her

ownership interest in the house to Claudia

Garcia, (a separate and true individual).

Iniguez then transferred her Section 8

benefits to the house on November 11,

1998, and told Los Angeles County

Housing Authority personnel that her

landlord was Garcia. In April of 2004,

Garcia granted the house back to Irma

Cortez. This was in violation of Iniguez’s

Section 8 housing assistance payment

contract. Based on Iniguez’s false

statements, the Authority made $52,392 in

payments to Garcia.

The Office of Inspector General

The Office of Inspector General The Office of Inspector General’

s

Enforcement Actions in Support of

Enforcement Actions in Support of Enforcement Actions in Support of

the Rental Housing Integrity the Rental Housing Integrity

Improvement Program Improvement Program

In support of the HUD-OIG Rental

Assistance Fraud Initiative, HUD-OIG,

Office of Investigation, proactively initiated

additional computer matching agreements

during this semiannual reporting period.

These new agreements will identify rental

assistance fraud by Federal employees and

U.S. Postal Service employees. These two

groups of employees would not have been

captured in the HUD, Office of Public and

Indian Housing, Rental Housing Integrity

Improvement Project (RHIIP) Upfront

Income Verification (UIV) computer

matching tool. UIV, now known as

Enterprise Income Verification, compares

public housing tenants and housing choice

voucher recipients with State wage data

reported by more than 22 States. HUD-OIG

will supervise these matching projects and

pursue any criminal cases identified from

the results. Other Agency OIGs will work

jointly with HUD-OIG on these potential

cases.

In addition, HUD-OIG initiated a data

comparison agreement with the National

Center for Missing and Exploited Children

during this semiannual reporting period.

This data comparison is part of a new

HUD-OIG national initiative to locate

missing children who are residing in HUDfunded housing.

HUD-OIG also initiated a data

comparison agreement during this

semiannual reporting period with the U.S.

Department of Homeland Security, Bureau

of Immigration and Customs Enforcement.

This data comparison initiative will locate

subsidized housing residents who failed to

depart the United States as ordered.

HUD-OIG has a current data

comparison agreement with the

Department of Justice, Criminal Justice

Information Services Division, and the U.S.

Marshal’s Service (USMS) in support of the

Fugitive Felon Program. This initiative

attempts to identify fugitives receiving

HUD-funded rental assistance and target

them for arrest.

In addition to these initiatives, HUDOIG continues to explore and identify

proactive ways to identify fraud in HUD

programs and assist Federal, State, and

local law enforcement.

In Miami, FL, on January 25, 2005, as

part of the Section 8 Initiative, HUD-OIG

Special Agents arrested six tenants and one

landlord on Federal housing fraud charges
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 66

stemming from a 9-month collaboration

with the United States Attorney’s Office,

Southern District of Florida, and three

housing authorities. A Federal grand jury

separately indicted the defendants with

multiple counts of theft of federally

subsidized housing funds and filing false

statements to HUD. Collectively, the

defendants defrauded HUD of more than

$139,000 in Section 8 housing subsidies.

The false statements provided by the six

Section 8 subsidized tenants consisted of

concealing employment income,

concealing ownership of property,

concealing ownership of businesses, and

undisclosed tenants. The seventh

defendant, a Section 8 landlord, sold the

property he rented under the program and

continued to receive and negotiate subsidy

checks for an 11-month period. One tenant

and the landlord have since pled guilty.

This investigation and enforcement

operation resulted in a press conference in

which Inspector General Donohue and the

United States Attorney addressed the

importance of the nationwide effort to

eliminate fraud and corruption in Section

8 subsidized housing and applauded the

efforts of the housing authorities that

worked with OIG in this collaborative

endeavor.

The U.S. Attorney’s Office, Public

Corruption Section, indicted an employee

of the Miami Dade Housing Agency for

defrauding the Section 8 subsidy program.

Samuel Norris was charged with theft of

government funds and making false

statements to HUD. As a Supervisor in the

Agency’s Leasing and Contracts Section for

more than 20 years, Norris certified that a

third party was the legal owner of a

property he owned and diverted $21,000

in Section 8 subsidy payments to himself.

The Miami Dade Housing Agency, the

largest housing authority in South Florida,

continues to be proactive in reporting to

OIG those employees, tenants, and

landlords who are engaging in corruption

and fraudulent activity involving the

Federal Section 8 subsidized housing

program.

Throughout the State of Illinois, as

part of “Operation Silver Fox,” on March

21, 2005, 24 individuals with outstanding

felony warrants and 2 persons in

possession of a controlled substance were

arrested by agents from HUD-OIG, the

Great Lakes Regional Fugitive Task Force,

and officers from the Rockford Police

Department and the Winnebago County

Sheriff’s Office. The outstanding offenses

include State of Illinois charges, involving

drugs, assault, weapons, and fraud. One

of those arrested was part of a recent

Bureau of Alcohol, Tobacco, and Firearms

Federal indictment from the Northern

District of Illinois. All of the arrests occurred

in the city of Rockford at housing authorityassisted units.

More than 50 officers participated in

the early morning sweep, which

concentrated on at least 15 of the Rockford

Housing Authority’s developments. Each

of the individuals arrested was either a

Rockford Housing Authority tenant or an

occupant of the unit. Among those items

seized were 100 rocks of crack cocaine.

Media coverage for the press

conference included three television

stations, two newspapers, and two radio

stations.

In Worcester, MA, Inspector General

Kenneth Donohue attended a press

conference at the Worcester Housing

Authority (WHA) on October 28, 2004, to

highlight the continuing success of the

Section 8/Fugitive Felon Initiative in

Worcester, MA, being conducted by the

WHA’s Department of Public Safety,
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 67

Worcester Police Department (WPD),

Massachusetts State Police (MSP), and

HUD-OIG.

On October 25, 2004, law enforcement

agents from the WPD, MSP, the Worcester

Housing Authority’s Department of Public

Safety, and HUD-OIG conducted

reasonable suspicion inquiries at the

Wellington Street Apartments, a PHA

development in Worcester, MA. Based on

previous allegations of illegal residents

living in the units, approximately 20

apartments were visited to determine the

validity of the allegations. On October 26,

2004, law enforcement agents from the

WPD, WHA, Department of Public Safety,

and HUD-OIG obtained approximately 30

arrest warrants at Worcester, MA, Federal

housing sites for outstanding State

warrants as a continuation of its Fugitive

Felon Initiative. The Worcester Section 8/

Fugitive Felon Initiative has resulted in

more than 70 arrests; 11 have been referred

for eviction, and 8 removed from the

program.

In U.S. District Court at Chicago,

IL, in a parallel criminal/civil investigation

known as “Operation EIGHT” (Enforcement

of Ineligible Grantees Housing Task Force),

14 Section 8 tenants from the Chicago

Housing Authority (housing authority) were

criminally charged for their participation in

multiple schemes to defraud the housing

authority. These actions were the

culmination of a 3-year-long HUD-OIG

proactive match between housing

authority tenants and employment

information from the Illinois Department

of Employment Security. These individuals

were charged with making false

statements and/or theft/embezzlement.

Among those schemes included in the

indictments were tenants having an

ownership interest in the property they were

renting, a tenant collecting Section 8 and

public assistance in both Wisconsin and

Copyright, 2004. Chicago Sun Times - Chicago, IL. Reprinted with permission.
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 68

Illinois, two tenants who vacated their

subsidized units while occupying FHAinsured residences, a tenant who cashed

housing assistance payments for her

deceased landlord, and tenants who failed

to report substantial sums of income for a

prolonged period of time.

Among the individuals charged were

an employee of the Circuit Court of Cook

County, two teachers from the Chicago

Board of Education, and a former employee

of the Illinois Department of

Transportation. On the same day, 12 of the

14 individuals had civil complaints filed

against them for the following counts: false

claims, payment by mistake, and unjust

enrichment. In summary, losses to the

housing authority exceeded $400,000

based on the alleged false statements in

these cases. The names of those criminally

charged were as follows: Antoine Reed,

Michelle Lowe, Howard Wilson, Sovaya

Chalmers, Tenille Davis, Johnnie Mae

Willis, Bader Hafeez, Urena Woods,

Angela Gibbs, Rodon Bailey, Evelyn Griffin,

Charlette White, Juwana Foster, and

Muhammad Abudullah.

Fugitive Felon Initiative: Fugitive Felon Initiative: Fugitive Felon Initiative:

OIG Enforcement Action in OIG Enforcement Action in OIG Enforcement Action in

Support of Rental Support of Rental Support of Rental

Assistance Voucher Fraud Assistance Voucher Fraud

Section 903 of the Personal

Responsibility and Work Opportunity

Reconciliation Act of 1996 (PRWORA),

Pub. Law No. 104-193 (Aug. 22, 1996),

amended 42 U.S.C. §§ 1437d(1)(9) and

1437f(d)(1)(B)(v), makes being a fugitive

felon a ground for the termination of

participation in federally funded assisted

housing programs. A fugitive felon for the

purpose of this law is any federally funded

assisted housing participant (tenant) who

is fleeing to avoid prosecution for a felony,

fleeing to avoid confinement for conviction

of a felony, or violating a condition of

probation or parole imposed for the

commission of a felony.

On September 25, 2002, the

Government Accountability Office (GAO)

issued GAO Report No. 02-716, Welfare

Reform: Implementation of Fugitive Felon

Provisions Should Be Strengthened. The GAO

report evaluated several agencies’ efforts

to implement various PRWORA provisions

that related to fugitives receiving benefits

from Federal assistance programs and

critically noted that HUD had not

conducted a data match to identify

fugitives receiving rental assistance. GAO

further determined that HUD had

effectively delegated its responsibilities to

PHAs and that HUD had not monitored

or evaluated the efforts of PHAs in this

regard.

To assist HUD in its response to the

GAO report, OIG began a Fugitive Felon

Initiative. The Fugitive Felon Initiative was

designed to identify fugitive felons residing

in federally funded assisted housing. OIG

recognized that, unlike some other Federal

agencies, neither HUD nor OIG is the body

that terminates the tenancy of a violator of

the PRWORA statute. Rather, a third

party, generally PHA, manages the

PRWORA violator’s tenancy. In addition,

OIG recognized that once the arrest of the

fugitive felon has occurred, the PRWORA

fugitive provision making it a ground for

tenancy termination may be removed, as

the subject is no longer a fugitive.

The OIG Fugitive Felon Initiative began

in FY 2003. Initially, the Fugitive Felon

Initiative used only USMS wanted person

data in an effort to identity fugitives. The

Office of Investigation identified a more farreaching tool to implement this strategy by
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 69

working with the Department of Justice’s

Criminal Justice Information Service and

matching its data in the National Criminal

Information Center for fugitive felons with

HUD’s PIC and Tenant Rental Assistance

Certification System data on assisted living

housing tenants.

This data-matching is used by all

Investigation Regional Offices to assist with

the OIG Section 8 Rental Assistance

Voucher Fraud Initiative in HUD-funded

public and multifamily housing to

apprehend fugitives residing in assisted

housing. During this semiannual reporting

period, the Office of Investigation efforts

in this initiative resulted in 824 fugitive

felon arrests.

The following cases reinforce the OIG

commitment to the Fugitive Felon Initiative.

In Boston, MA, on December 8, 2004,

law enforcement agents from the Boston,

MA, Police Department (BPD), BHA Police,

Massachusetts Department of Parole,

Massachusetts Department of Youth

Services, Massachusetts Bay Transit

Authority, and HUD-OIG, arrested 15

individuals as part of an ongoing fugitive

felon initiative in the Metropolitan Boston

area. This particular fugitive felon sweep

focused on the BHA public housing

development known as Bromley Heath,

located in the Jamaica Plain section of

Boston. Although the fugitive felon

initiative in Bromley Heath had been in the

planning stages, following a meeting

between the BPD Police Commissioner

Kathleen O’Toole and HUD-OIG, the

initiative became a priority with BPD

following the rape of a 17-year-old female

by 10 youths in the basement at Bromley

Heath on November 29, 2004. Five of the

ten suspects in this sexual assault were

among the 15 that were apprehended in

this initiative.

In Aurora, CO, HUD-OIG Agents and

the Aurora Police Department conducted

a sweep, as part of the Fugitive Felon

Initiative, at Weatherstone Apartments, a

HUD Section 8 project-based housing

development. The apprehension unit also

visited individually scattered Section 8

voucher sites throughout Aurora.

Weatherstone Apartments is located next

door to a high school and, consequently, is

a high priority for OIG. As a result of the

sweep, Marcus Carter, Kencheze Ray,

Tyronne Peterson, Arlene Peterson,

Jennifer Warn, Maria Herrera, Bridgette

Hamilton, and Tammy Hill were

apprehended for having outstanding

warrants. Donald Davis was arrested and

charged with possession of drug

paraphernalia and possession of marijuana

with intent to distribute. More than 91

grams of marijuana was seized from Davis’

apartment. Neisha Jones, Maria Herrera,

Marcus Ramos, and Markitina Beverly

were issued municipal citations for various

infractions of the law occurring during the

course of the felony sweep.

In Los Angeles, CA, pursuant to

HUD-OIG’s National Fugitive Felon

Initiative, the Los Angeles HUD-OIG

coordinated with the Los Angeles USMS

Regional Fugitive Task Force in an attempt

to effect 25 outstanding arrest warrants,

which were identified based on HUDOIG’s listing of wanted felons who were

simultaneously receiving Section 8 benefits.

This multiagency operation was successful

in executing 13 of the 25 arrest warrants,

all without incident. The 13 arrests made

were pursuant to outstanding warrants for

various criminal violations including

felony fraud, possession of narcotics and

dangerous drugs, burglary, obstructing

justice, assault with a deadly weapon,

counterfeiting, and welfare fraud. All

individuals arrested were located at their

respective subsidized residences within the
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 70

City of Los Angeles. Participating agencies

included the USMS, the Bureau of Alcohol,

Tobacco, and Firearms (ATF), the California

State Parole Board, the Los Angeles Police

Department (LAPD), the Orange County

Sheriff’s Department (OCSD), and the

Department of Children and Family Services

(DCFS). Judicial actions will be monitored,

and the foregoing information will be

referred to the Los Angeles Housing

Authority for possible termination of benefits

from the rental assistance program.

Additional coordination with the USMS

Regional Fugitive Task Force and the

aforementioned agencies is being

conducted to pursue and execute the

remaining 12 outstanding warrants and a

number of additional warrants identified

from the HUD-OIG’s National Fugitive

Felon Initiative warrant matching list.

In furtherance of HUD’s National

Fugitive Felon Initiative, beginning in March

of 2005, HUD-OIG Special Agents

implemented the Louisiana National Fugitive

Felon Initiative. Along with members of

USMS, two sweeps have been conducted in

New Orleans, LA, resulting in five arrests

of individuals who are wanted either locally

or nationally. These individuals will be

referred for eviction through the Housing

Authority of New Orleans. This initiative is

ongoing and will be worked throughout the

State of Louisiana in an effort to apprehend

wanted persons residing in public and Section

8 housing. HUD-OIG, along with members

of USMS, led this initiative.

  
Chapter 4

HUD’s Multifamily Housing

Programs
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 72

The chart cost figures in this chapter represent the actual monetary benefits for all reports issued during

this semiannual period. The monetary benefits shown in the Profile of Performance represent only those

reports with management decisions reached during this semiannual period. Because there is a time lag

between report issuance and management decisions, the two totals will not agree.

I n addition to multifamily

 housing developments with

U.S. Department of Housing and Urban

Development (HUD)-held or HUD-insured

mortgages, the Department owns

multifamily projects acquired through

defaulted mortgages, subsidizes rents for

low-income households, finances the

construction or rehabilitation of rental

housing, and provides support services for

the elderly and handicapped.

Audits

During this period, the Office of

Inspector General (OIG) issued 11 external

reports in the multifamily housing program

area. These reports disclosed nearly $30.4

million in questioned costs and more than

$3.9 million in recommendations that

funds be put to better use.

Over the past 6 months, we audited

health care facility operations, owner and

management agent operations, and one

contract administrator. The results of our

more significant audits are described below.

We have placed an emphasis, during this

period and prior periods, on the Section 232

program due to increased congressional

interest.

Chart 4.1: Multifamily Housing Program

Reports Issued

11

Section 232/Health Care Facility Section 232/Health Care Facility

Reviews Reviews

We completed an audit of the

Carmichael Rehabilitation Center in

Carmichael, CA. We found that the owner

incorporated the project in its petition for

bankruptcy and then defaulted on the

project’s mortgage. In addition, the owner

disbursed $3.7 million in project funds

through ineligible cash distributions and

expenses. These activities resulted in

increased risk to HUD, the assignment of

the mortgage note to HUD, and HUD’s

resulting loss of $323,000 on the sale of the

note. We recommended the recovery of the

loss incurred on the sale of the mortgage

note, appropriate administrative action,

and recovery of the net ineligible

distributions in the amount of $3.7 million.

(Audit Report: 2005-LA-1801)

We completed a review of the Canoga

Care Center, located in Canoga Park, CA,

to determine whether the project was

operated in accordance with the regulatory

agreements and to identify the reasons for

the mortgage loan default. We found that

 Questioned Costs Funds Put to Better Use

Chart 4.2: Multifamily Housing Chart 4.2: Multifamily Housing

Program Dollars Program Dollars

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0 External Reports

External Reports
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 73

GMAC Commercial Mortgage did not

properly originate the loan, and the

improper loan origination substantially

contributed to the mortgage default. We,

therefore, recommended that GMAC

Commercial Mortgage be held accountable

for the improper $6.7 million insured loan

origination and the $3.3 million loss

incurred by HUD when the insured note

was sold. We also recommended civil

and/or administrative actions against the

individual lender, owner, and operator

officials involved in the improper loan

origination. (Audit Report: 2005-LA-1804)

We audited Lakewood Care Center, a

skilled nursing facility in Milwaukee, WI.

The owner inappropriately disposed of $1

million in project assets while the project

was in a non-surplus-cash position and in

default of its Federal Housing

Administration (FHA)-insured loan.

During this time, the owner also

inappropriately loaned $612,000 of project

funds to the identity-of-interest operator of

the project. We recommended the owner

reimburse the project’s reserve for

replacement and/or HUD’s FHA insurance

fund $1 million for the inappropriate

disposition of project assets. We also

recommended that HUD pursue double

damages remedies, impose civil money

penalties, and pursue administrative

sanctions against the owner and its

managing member. (Audit Report: 2005-

CH-1004)

We audited Wood Hills Assisted

Living Facility in Kalamazoo, MI. We

found the owner had inappropriately

disposed of $518,000 in project assets

without obtaining HUD approval and in

violation of its regulatory agreement and

also inappropriately lent almost $13,000 of

project funds to the identity-of-interest

operator of the project. The project was in

a non-surplus-cash position and/or in

default during this time. HUD incurred a

loss of $1 million on the sale of the mortgage

note. We recommended that the owner

reimburse the insurance fund $518,000 for

the inappropriate disposals and the

Department pursue double damages

remedies, pursue action under the Program

Fraud Civil Remedies Act, impose civil

money penalties, and pursue

administrative sanctions against the

owners. (Audit Report: 2005-CH-1005)

In Bethany, OK, we audited the

Heartland Health Care Center of Bethany,

a HUD-insured nursing home, to

determine whether the Center complied

with the regulatory agreement and HUD

requirements when disbursing project

funds. We found the Center officials used

$2.3 million for ineligible costs, such as loan

repayments and late fees, and could not

support $4.5 million in expenditures.

Further, Center officials did not provide

documentation to support the use of

revenue amounting to nearly $12 million.

This ultimately resulted in mortgage

default and closure of the Center. We

recommended that the Center officials

reimburse HUD for the ineligible costs and

take appropriate administrative actions.

(Audit Report: 2005-FW-1003)

Owner and Management Agent Owner and Management Agent Owner and Management Agent

Operations Operations

In Farmington Hills, MI, we reviewed

the records of RVA Properties, Inc., to

determine whether it used project funds in

compliance with the regulatory agreements

and HUD’s requirements. The owners

and/or RVA Properties, Inc., management

agent, inappropriately used $272,000 from

four projects when the projects were in a nonsurplus-cash position. The inappropriate

expenses included $23,000 for ineligible

expenses and $248,000 for unsupported
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 74

expenses. As a result, funds were not used

efficiently and effectively, and fewer funds

were available for the projects’ normal

operations. We recommended the owners

and/or management agent reimburse the

appropriate reserve capital account for the

amount that cannot be supported from

nonproject funds. We also recommended

that HUD, in conjunction with HUD’s OIG,

pursue double damages remedies and

administrative sanctions against the owners

and/or management agent. (Audit Report:

2005-CH-1801)

In Dallas, TX, we performed an audit

survey at Highland Meadows Apartments,

a HUD-insured multifamily project. We

concluded the owner (1) paid $68,000 to an

unapproved identity-of-interest management

company, (2) took $45,000 in distributions

when the property was not in good repair

and in a non-surplus-cash position, (3) paid

$10,000 to other identity-of-interest entities,

and (4) maintained the property in poor

condition. We recommended that the

Department seek reimbursement from the

owner for the $124,000 in ineligible

disbursements and payments and impose

sanctions against the owner as appropriate.

(Audit Report: 2005-FW-1801)

In San Antonio, TX, we completed an

audit of Domicile Property Management,

Inc. (Domicile). The Office of Investigation

asked us to do the audit. Our objectives were

to determine whether Domicile used HUDassisted property funds in compliance with

the regulatory agreements and applicable

HUD requirements.

In violation of the properties’ regulatory

agreements, Domicile diverted property

income totaling $771,103 to pay nonproject

expenses and paid another $1,469,926 from

property accounts for which there was no

documentation to show the payments were

for necessary and reasonable operating costs.

Further, Domicile did not abide by the 1995

settlement agreement for a previous HUD

claim, involving project overcharges during

1992 and 1993. Although Domicile paid

$272,113 under the agreement, it did not

report and pay $49,262 for self-funded health

insurance. Because of Domicile’s current

diversions and failure to pay the previous

settlement obligation, it deprived the

properties of operating funds, reducing

HUD’s security interests and increasing

HUD’s risks. We recommended that HUD

require Domicile and its owner to repay or

provide support for $2,290,291 in improper

charges to the properties, reimburse the

Government $352,053 for our audit costs, and

take administrative sanctions against the

owner and Domicile. (Audit Report: 2005-

FW-1002)

We completed a limited review of

expenditures reported by Arlington Arms in

Jersey City, NJ, to determine whether

expenditures complied with the project’s

regulatory agreement and other HUD

regulations. We found the project paid

ineligible entity expenses of more than

$10,000 and made an unallowable loan of

$1,000 to the partners of the ownership

entity. Consequently, we recommended that

HUD instruct the partnership to reimburse

the project for the amount of the ineligible

expenditures and obtain written HUD

approval before making any payments for

these fees in the future. (Audit Report: 2005-

NY-1802)

Contract Administrator Operations Contract Administrator Operations

In Salem, OR, we audited Oregon

Housing and Community Services, a contract

administrator, as a followup to our recent

audit of Uptown Tower Apartments (Report

Number 2004-SE-1003, dated March 26,

2004). We found Oregon Housing did

not ensure that $1.4 million of project
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 75

funds distributed to owners conformed to

HUD requirements. Oregon Housing

inappropriately approved or allowed

unreasonable management fees, split

management fees, the revaluation of

commercial space, unreasonable interest

payments on commercial space, and

distributions from residual receipts. Funds

inappropriately paid to the owners or

management agents reduced the amount of

money available for deposit into the residual

receipts accounts. The funds in these accounts

should have been available for legitimate

project purposes with the unused balance

returning to HUD upon termination of the

subsidy contracts. We recommended that

Oregon Housing reimburse the projects a

total of $1.4 million for the fees and

payments it inappropriately authorized.

We also recommended that Oregon

Housing immediately reduce the excessive

management fees, stop allowing projects to

split management fees, and discontinue

allowing the project to pay owner

distributions from the residual receipts fund

when surplus cash is not sufficient. Oregon

Housing should also be required to

recalculate owner distributions, using the

original value of the commercial portion of

the project, and implement controls to ensure

that fees and distributions to owners and

management agents are reasonable. (Audit

Report: 2005-SE-1003)
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 76

Investigations Investigations Investigations

During this reporting period, the OIG

opened 78 investigation cases and closed

81 cases in the multifamily housing

program area. Judicial action taken on

these cases during the period included

$2,489,543 in investigative recoveries,

$2,293,596 in funds put to better use, 61

indictments/informations, 41 convictions/

pleas/pretrial diversions, 61 administrative

actions, 8 personnel actions, and 132

arrests.

Some of the investigations discussed in

this report were conducted by OIG, while

others were conducted jointly with Federal,

State, and local law enforcement agencies.

The results of our more significant

investigations are described below.

Insurance Fraud Insurance Fraud

In Chicago, IL, in the Northern District

of Illinois, defendant Ralph Aulenta was

sentenced before U.S. District Judge John

Grady to serve 1 year and 8 months in a

Federal penitentiary. Aulenta was also

ordered to pay $2,006,832 in restitution.

Aulenta was responsible for providing

insurance coverage to HUD-insured

multifamily projects. Aulenta admitted he

was part of a scheme in which he overbilled

the insurance premiums provided to these

multifamily projects. Aulenta admitted to

falsely inflating the premium amount and

then later providing a kickback of a portion

of the overpaid insurance premium to the

owner and manager of the HUD

multifamily projects.

In addition to the fraud against HUD,

Aulenta was responsible for overbilling

insurance premiums to the City of

Rosemont and later receiving a kickback

from other coconspirators for his

participation in the scheme.

Conspiracy Conspiracy

In Boston, MA, in U.S. District Court,

defendant Joseph O’Connor pled guilty to

one count of conspiracy. He was indicted

on September 22, 2004. Two additional

defendants had been charged in this

matter. Janet Gaibl and Joseph Cassidy

were indicted by a Federal grand jury on

November 19, 2003, both charged with one

count of conspiracy. Gaibl was also charged

with two counts of making false statements.

Cassidy pled guilty and was sentenced on

September 2, 2004. Gaibl pled guilty on

June 23, 2004, but has yet to be sentenced.

Chart 4.3: Multifamily Recoveries Chart 4.3: Multifamily Recoveries

Other

6%

Skimming

81%

Total Recoveries: $2,489,543

Section 8

13%

Chart 4.4: Multifamily Funds Put to Better Use

Other

9%

Section 8

56%

Total: $2,293,596

Embezzlement

9%

False

Statement

15%

HUD

Employee

11%
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 77

The November 2003 indictment

alleged that between 1988 and mid-2000,

Gaibl and Cassidy, former employees of

First Realty Management (FRM), combined

to cause false statements to be submitted

to HUD relating to a rent subsidy program

at Cummins Towers, a HUD-insured

multifamily complex managed by FRM.

Gaibl and Cassidy allegedly identified

certain federally subsidized units at the

development for their own use or the use

of friends and then caused false statements

to be made on related HUD forms and

supporting documents to be fabricated for

the purpose of obtaining subsidized units

for individuals who would not otherwise

qualify. By their actions, Gaibl and Cassidy

caused a loss to HUD in excess of $140,000

and also deprived qualified families of the

use of the subject units. O’Connor was also

a beneficiary of one of these Section 8 units,

from which he ran a cleaning company.

Equity Skimming Equity Skimming

In Portland, ME, defendant Donald

Baldyga, Jr., pled guilty to one count of

multifamily equity skimming in U.S.

District Court. Donald Baldyga, Jr., owner

of the multifamily Family Living Adult

Care Center, located in Saco and

Biddeford, ME, was charged on December

1, 2004, in a one-count Federal indictment

with equity skimming. The case involved a

defaulted mortgage totaling $2.9 million.

The property was resold for $900,000,

resulting in a loss to HUD of $2 million.

This was a significant indictment in that it

involved equity skimming from a HUDfunded assisted living development from

which the owner skimmed almost

$400,000, causing the foreclosure and a

significant loss to HUD. The facility had

been in good financial and physical

condition before Baldyga took over the

project; however, he made only one

mortgage payment and used the fees he

collected for personal use, causing the

elderly residents undue hardship. The State

ultimately shut down the facility and

relocated the residents. Sentencing is

scheduled for May 2005.

In Hot Springs, AR, in U.S. District

Court, Western District of Arkansas, defendant Rodney Myers entered a plea of

Copyright, 2005. The Journal Tribune - York County, ME. Reprinted with permission.
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 78

guilty to one count of bankruptcy fraud,

one count of money laundering, and one

count of perjury. Rodney Myers was indicted by a Federal grand jury in the Western District of Arkansas on 22 counts of

equity skimming, bankruptcy fraud,

money laundering, making false statements

to HUD, perjury, and subornation of perjury. Myers is the former owner of a HUDinsured multifamily project, Burchwood

Harbour Apartments (BHA) in Hot

Springs, AR.

From December 1998 to April 2000,

while the HUD-insured mortgage was in

default and during the period of BHA’s

Chapter 11 bankruptcy proceeding, Myers

devised a scheme to defraud and diverted

more than $110,000 in project rents and

other funds in violation of the regulatory

agreement and the U.S. Bankruptcy

Court’s cash collateral order. After the

bankruptcy was dismissed in April 2000

and while the HUD-insured mortgage was

in default, Myers diverted more than

$40,000 in project rents and other funds

from April to July of 2000 in violation of

the regulatory agreement.

Myers’ scheme involved diverting rent

checks to his personal bank accounts and

writing BHA checks to several contractors

and either receiving cash kickbacks from

contractors or forging contractor

endorsements, purchasing cashier’s checks,

and depositing the cashier’s checks to his

personal bank accounts. Myers used

inflated and phony invoices and bids for

work not performed to conceal his

diversions. Myers’ sentencing has not been

scheduled. This investigation was referred

to OIG by the HUD Office of General

Counsel in Fort Worth, TX.

False Statements False Statements

In Chicago, IL, a Circuit Court of Cook

County grand jury indicted on multiple

forgery counts the following individuals, who

were Section 8 tenants at 810 W. Grace, a

100-percent HUD-subsidized building

located in Chicago: Arlene Adewole,

Hakeem Adewolej, Jones Mireku, Amma

Mireku, Abdul Mustapha, Bukonla

Mustapha, Simon Kent, Hakeem Durojaye,

Afusat Durojaye, Muradali Bohjani, and

Evaristo Torres. These charges are the

culmination a 5-year investigation, which

focused on the building.

Among those schemes alleged in the

indictment were the failure to report W-2

income, self- reported income, savings,

checking and investment bank accounts,

rental income from properties that the

tenants owned, Supplemental Security

Income payments, and taxicab medallions.

In addition to the false statements to HUD,

these individuals purportedly made

multiple false statements to the Social

Security Administration, the U.S.

Bankruptcy Court, and various local banks

and lenders. In total, the above-mentioned

individuals are alleged to have caused in

excess of $270,000 in overpayment of HUD

Section 8 payments.

Theft and Embezzlement

Theft and Embezzlement Theft and Embezzlement

In Louisville, KY, in the Western

District of Kentucky, Londy Rya Haycraft,

president, U.H.M. Management Services,

was found guilty on 8 counts in a 10-count

indictment. On June 18, 2003, a Federal

grand jury for the Western District of

Kentucky indicted Haycraft for submitting

false documentation to HUD and for

embezzling, stealing, and obtaining by

fraud and otherwise without authority for
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 79

his own use, more than $800,000 in funds

belonging to Blanton House, a 20-story 256

unit facility subsidized by HUD. In

addition, trial evidence demonstrated that

Haycraft wrote checks payable to personal

use, petty cash, credit cards, and casinos.

In Charleston, WV, in Federal Court,

Southern District of West Virginia,

defendant Romona Taylor Williams, a

property manager and former Executive

Director of a local nonprofit organization,

was sentenced for her admitted role in a

scheme to defraud HUD and two State

agencies. The defendant was ordered to be

imprisoned for 6 months, to be followed

by 6 months supervised release, and was

ordered to repay a total of $63,788 to HUD

and the two other agencies.

The OIG investigation determined that

Ms. Taylor Williams recruited her daughter

and a friend to apply for and receive

Section 8 housing choice vouchers, which

they then turned over to the defendant. The

defendant used both vouchers to provide

“free” housing in her apartment building

as an inducement or fringe benefit to

enable her to recruit skilled individuals for

her nonprofit agency.

In Dallas, TX, in the Northern District

of Texas, Dallas Division, defendant Daniel

Manterola Muedano, also known as Daniel

Gonzalez Monzalvo, pled guilty for

violations of fraud and misuse of identity

documents, conspiracy, and misuse of a

Social Security number (SSN). Muedano

was part of a false document

manufacturing operation that produced

numerous forms of identification for illegal

aliens. These false documents included

resident alien cards, Social Security cards,

Texas driver’s licenses, insurance cards,

vehicle inspection stickers, etc. These

documents were used to obtain

employment, purchase homes that received

FHA insurance, and other fraudulent

activities. The false document mill was

located in a HUD-insured apartment

complex. So far, three of the five individuals

involved in the operation have pled guilty.

Defendant Edgar Manterola Simeon,

also known as Roberto Gomez, pled guilty

in the Northern District of Texas, Dallas

Division, for violations of fraud and misuse

of identity documents, conspiracy, and

misuse of an SSN on one FHA loan. This

loan was valued at $93,500 with an estimated

loss to the Government of $26,000. Simeon

was also a part of a false document

manufacturing operation that produced

numerous forms of identification for illegal

aliens.

In Stockton, CA, in the Superior Court

of California, County of San Joaquin,

defendant Mark Southard, former

management agent for the Sea Breeze

Apartments, pled guilty to State felony

charges of grand theft, embezzlement,

crimes against an elder or dependent adult,

and “white collar” enhancement.

Southard is scheduled to be sentenced.

Southard embezzled more than a million

dollars in cash from a HUD mortgageinsured project. The scheme involved

fraudulent contractor’s invoices and the

manipulation of rent rolls and rental

income, and it is believed that a majority

of the money involved was cash.

In Fort Lauderdale, FL, in Federal

Court, Southern District of Florida,

defendants Maha Elsaai and Ashraf Elsaai

pled guilty to felony charges that they

conspired to defraud HUD under the

Section 8 Rental Assistance Voucher

Program. Maha Elsaai was sentenced to 14

months incarceration, to be followed by 36

months of supervised release. Ashraf Elsaai

was sentenced to 12 months incarceration,

to be followed by 36 months supervised
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 80

release. The defendants were also ordered

to make restitution to HUD in the amount

of $41,383 and each was ordered to pay a

special assessment fee of $100. This

investigation found that since 1997 Maha

and Ashraf Elsaai have falsified

employment and income documents to

maintain rental assistance subsidies.

In Pacoima, CA, pursuant to

investigative leads provided by tenants and

property management staff, Los Angeles

HUD-OIG and the Immigration and

Customs Enforcement Agency conducted

a Rental Assistance Initiative operation at

the Pierce Park apartment complex. During

the course of the operation, three HUDsubsidized properties were visited to

conduct followup investigations to

determine whether the residents were in

violation of Section 8 rules and regulations

and to execute outstanding warrants for

immigration violations.

Eliazar Plasencio was arrested based

on an outstanding Federal warrant for

immigration violations that was initiated

based on his prior conviction in the State

of California for the sale of narcotics. A

referral was also made to the Department

of Children and Family Services based on

the fact that two children were sleeping on

the floor of the unclean and unhealthy

residence.

At the residence of Lilian Palencia,

several unauthorized tenants were

encountered. One of the unauthorized

tenants, Albadia Pena, admitted that she

was subletting the unit from Palencia.

In Oakland, CA, in the U.S. District

Court of Northern California, Oakland

Division, an information was filed charging

defendant Adrienne Bradley with four

counts of making false statements to HUD.

The charges came as a result of an OIG

investigation, which disclosed that Bradley

failed to provide the Crescent Park

Apartments management with accurate

information regarding her income from

1995 through 2003. Bradley’s actions

resulted in a loss to HUD totaling more than

$25,000.

In Louisville, KY, in the Western

District of Kentucky, defendant Alan King,

Treasurer, Board of Directors, Colonial

Square Cooperative, Inc., pled guilty to an

information. The information charged that

for a 1-year period, King embezzled, stole,

and obtained by fraud property with a

value in excess of $5,000 from Colonial

Square Cooperative, Inc., which was

receiving a capital improvement loan from

HUD. An independent audit of financial

statements for the Colonial Square

Cooperative revealed possible theft of funds

from the operating account. King

instructed property management staff to

cosign blank checks or checks made

payable to him for cash. King used the

project operating funds for personal

benefit.

In Federal Court, in Roanoke, VA,

defendant Tonia Hicks, former Section 8

tenant, was indicted on one count of theft

of Federal funds. A joint investigation by

OIG and the Christiansburg, VA, Police

Department was initiated based on a

complaint to the HUD Hotline. The

investigation disclosed that Hicks married

in June of 2001 and failed to report this to

management. She then continued to omit

her husband’s residency and income on

official forms through May 2004, thereby

receiving a benefit of approximately

$11,000 in rental assistance.

In Federal Court in Bronx, NY,

defendant Jacqueline Grullon, a tenant at

a Section 8 complex known as Andrews

Plaza, Bronx, NY, was arrested, charged,
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 81

and remanded pending a $100,000 bond

signed by three responsible individuals and

$7,500 in cash. Grullon was charged with

conspiracy to commit fraud, accepting

bribes concerning programs receiving

Federal funds, and witness tampering.

Grullon is accused of accepting bribes as

an intermediary or middleman for the

Andrews Plaza project manager. The

scheme involved prospective tenants being

advised that if they wanted to move in,

they would need to pay a fee to Grullon, a

tenant and known associate of Saneaux.

Evidence was also provided showing that

Grullon was contacting witnesses before

trial and threatening them to get them to

either not talk to government officials or

not tell the truth. Grullon allegedly

accepted payments of up to $8,000 from

several applicants and gave the money to

Saneaux. Robert Grullon, brother of

Jacqueline and another intermediary, has

already pled guilty to his part in the

scheme.

In Palcom, KS, in the 17th District

Court of Kansas, defendant Steve Wood, a

rural housing multifamily Section 8 tenant,

pled guilty to criminal deprivation of

property and was sentenced to serve 360

days imprisonment and 24 months

probation and was ordered to pay $8,708

in restitution to HUD. Wood failed to

inform Embers Apartments that he had

purchased and moved to another residence

with his girlfriend. Interviews revealed that

Wood used the Embers Apartment unit for

storage. Wood received $8,708 in rental

assistance to which he was not entitled.

  

Chapter 5

HUD’s Community Planning

and Development Programs
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 84

The chart cost figures in this chapter represent the actual monetary benefits for all reports issued during

this semiannual period. The monetary benefits shown in the Profile of Performance represent only those

reports with management decisions reached during this semiannual period. Because there is a time lag

between report issuance and management decisions, the two totals will not agree.

T he Office of Community

 Planning and Development

(CPD) seeks to develop viable

communities by promoting integrated

approaches that provide decent housing,

as suitable living environments, and

expanded economic opportunities for

low- and moderate-income persons. The

primary means toward this end is the

development of partnerships among all

levels of government and the private

sector.

Audits

During this reporting period, the Office

of Inspector General (OIG) issued four

external audit reports in the CPD program

area. These reports disclosed nearly $1.2

million in questioned costs and more than

$850,000 in recommendations that funds

be put to better use.

The OIG audited the Community

Development Block Grant (CDBG)

programs and the Section 108 Loan

Guarantee program.

Chart 5.1: Community Planning and

Development Reports Issued

4

Community Development Block Community Development Block

Grant Program Grant Program

We performed the fourth of our

ongoing audits of the New York, NY,

Lower Manhattan Development

Corporation’s (the auditee) administration

of the CDBG Disaster Recovery Assistance

funds. These funds were provided to the

State following the September 11, 2001,

terrorist attacks on the World Trade Center

in New York City. The auditee received

more than $2.7 billion in CDBG Disaster

Recovery Assistance funds from the U.S.

Department of Housing and Urban

Development (HUD) and disbursed more

than $276 million between April 1 and

September 30, 2004, for activities related

to the rebuilding of Lower Manhattan.

Our audit objectives were to determine

whether the auditee disbursed CDBG

Disaster Recovery Assistance funds to

eligible grant applicants.

Our review disclosed that the auditee

disbursed more than $141,000 of its CDBG

Disaster Recovery Assistance funds for

ineligible administrative expenses under

New York City’s Utility Restoration and

 Questioned Costs Funds Put to Better Use

Chart 5.2: Community Planning Chart 5.2: Community Planning

and Development Dollars and Development Dollars

1,500,000

1,000,000

500,000

0 External Reports

External Reports
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 85

Infrastructure Rebuilding program. The

auditee’s subrecipient (its parent company)

drew down CDBG Disaster Recovery

Assistance funds from HUD without first

submitting its invoices to the auditee for

review of the accuracy and eligibility of the

costs being billed. We recommended that

HUD instruct the auditee and/or its

subrecipient to reimburse the Utility

Restoration and Infrastructure Rebuilding

program more than $141,000 in CDBG

Disaster Recovery Assistance funds that

were drawn down for ineligible salary and

fringe benefits costs. (Audit Report: 2005-

NY-1003)

As part of our audit of the City of New

Orleans, LA, CDBG program, we audited

its subrecipient, the New Orleans African

American Museum. The objective of our

audit was to determine whether the

Museum administered its CDBG program

funds in an economical and efficient

manner and in accordance with the terms

of the grant agreements with the City and

applicable regulations and Federal laws.

Of five City-awarded grants, two

grants totaling $745,000 failed to meet

HUD requirements. For the remaining

three grants totaling more than $1 million,

the Museum failed to document that it met

one of HUD’s national objectives. Further,

the Museum did not exercise financial

oversight or management for its five grants.

The Museum commingled funds, did not

have adequate controls over procurement,

and failed to comply with Federal and State

income tax requirements, resulting in more

than $50,000 in ineligible and $181,000 in

unsupported disbursements.

We recommended that the

New Orleans Community Planning

Development Director require the City to

repay its CDBG program more than

$774,000 for ineligible and $298,000 for

unsupported disbursements and recover

any remaining assets provided to the

Museum. Further, the City should seek

appropriate administrative sanctions

against parties involved in the deficiencies

described in the report. (Audit Report:

2005-FW-1005)

Section 108 Loan Guarantee Section 108 Loan Guarantee

Program Program

As part of our audit of the City of New

Orleans, LA, CDBG program, we audited

a Section 108 loan to the Louisiana Artists

Guild to construct Louisiana Artworks. Both

the City and the Louisiana Artists Guild

stated systems were in place to ensure that

Louisiana Artworks would create sufficient

jobs for the $7.1 million Section 108 loan.

While Louisiana Artworks expended the

vast majority of the funds reviewed

properly, it overpaid the City’s attorney

more than $1,600 and could not support

more than $17,000 paid to the attorney or

$3,000 paid to a financial analyst. Both the

City and Louisiana Artworks agreed to

provide support or recover the amounts.

We recommended that Louisiana

Artworks repay more than $1,600 in excess

charges for legal fees, repay the more than

$17,000 of unsupported funds paid to the

attorney and $3,000 paid to the financial

analyst or provide adequate support, and

establish the necessary management

controls. (Audit Report: 2005-FW-1001)
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 86

Investigations Investigations Investigations

During this reporting period, OIG

opened 25 investigative cases and closed

22 cases in the CPD program area. Judicial

action taken on these cases during the

period included $7,137,802 in investigative

recoveries; $1,309,036 in funds put to better

use; 16 indictments/informations; 18

convictions, pleas, and pretrial diversions;

23 administrative actions; 4 personnel

actions; and 15 arrests.

Some of the investigations discussed in

this report were conducted by OIG, while

others were conducted jointly with Federal,

State, and local law enforcement agencies.

The results of our more significant

investigations are described below.

Wire/Mail Fraud and Bribery/ Wire/Mail Fraud and Bribery/

Payoffs Payoffs

A Federal jury in Federal District

Court, Springfield, MA, convicted four

former officials of the Massachusetts Career

Development Institute (MCDI), a CDBGfunded State organization, on February 28,

2005, after a 5-week trial. All four

defendants in this case were charged on

September 2, 2004, in a 19-count

superseding Federal indictment in

Springfield, MA. This indictment had

previously been handed down by a Federal

grand jury in January 2004. The indictment

included the violations of conspiracy,

program fraud, wire fraud, obstruction of

justice, making false statements,

threatening a witness, and aiding and

abetting. The four defendants who were

charged and convicted had been employed

by MCDI, which provided educational and

Copyright, 2005. The Republican - Springfield, MA. Reprinted with permission.
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 87

job-training programs for income-eligible

individuals in the Springfield area. The four

defendants were the former MCDI

Executive Director Gerald Phillips, former

Administrator Giuseppe Polimeni, former

no-show MCDI employee Luisa

Cardaropoli, and former MCDI Secretary

Jamie Dwyer. The investigation concerned

no-show employees.

Joseph Barry, a Hudson County

developer of the Shipyard project in

Hoboken, NJ, was sentenced in U.S. District

Court, Newark, NJ, to 20 months

incarceration and ordered to pay $1 million

in restitution to HUD, the U.S. Department

of Transportation, and the Federal

Highway Administration within 2 weeks

and a $20,000 fine. Barry admitted paying

$115,000 in cash to Hudson County

Executive Robert Janiszewski as a reward

for his help in securing State and Federal

grants for his project in Hoboken. Barry

surrendered for imprisonment on

December 2, 2004. On June 22, 2004,

Joseph Barry pled guilty to mail fraud and

bribery. Barry managed to secure HUD

grants and loan guarantees under the

Economic Development Initiative grant in

the amount of $1 million, as well as a Section

108 loan guarantee for these projects in the

amount of $6.69 million. Barry was

previously indicted on 16 counts. The

indictment detailed $8.8 million in Federal

and State loan grants that Barry and his

enterprise, the Applied Companies,

secured through bribery. Barry maintained

a “payoff sheet” of bribe amounts, dates,

and notations, indicating which

government loan or grant the payoff(s)

were connected to.

In Rochester, NY, Steven Young pled

guilty to one count of mail fraud. On

November 30, 2004, Young was charged

in the Western District of New York by

criminal complaint with mail fraud and

making a false statement to HUD. Young,

a rehabilitation specialist for the City of

Rochester, NY, was responsible for writing

specifications for the rehabilitation of

privately owned housing within the City

of Rochester. The homeowners must first

qualify for CPD Home Ownership Made

Easy (HOME) funds. These grants range

between $10,000 and $30,000 per project,

and the homeowner may qualify for more

than one type of grant. Young was charged

with receiving bribes from various

contractors during the years 2002 through

2004. Young steered the contracts to the

contractors by telling the contractors the

amount of the lowest bid. The contractor

would then bid a lower amount than the

lowest bid to win the bid. The contractor

would pay Young between $300 and $500

in cash, depending on the size of the

contract. Young was also charged with

submitting two final inspections that

verified that all rehabilitation work had

been completed on two HUD-subsidized

grants totaling $25,000. Young made false

statements in these final inspections when

he signed them and certified that the

rehabilitation had been completed, when

it had not been completed.

In Rochester, NY, in the Western

District of New York, Emmett Porter was

sentenced to 2 years probation and a

$1,000 fine. Porter was charged on October

15, 2004, with one count of mail fraud.

Porter was a contractor in the City of

Rochester who submitted numerous

fraudulent bids by mail to receive the

winning bids on large single-family

rehabilitation contracts. Porter is known to

have submitted three fraudulent bids for

approximately $216,000. Porter

fraudulently prepared bids from other

Rochester contractors on their letterhead

without their knowledge. The City of
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 88

Rochester rehabilitation program receives

$2 million per year in HUD CDBG and

HOME grant funds. In addition to HUD

funding, the City of Rochester has received

$12 million in funding from numerous

other sources to rehabilitate housing in the

City of Rochester, which will be sold to

low-income families.

Conspiracy to Commit Conspiracy to Commit Conspiracy to Commit

Racketeering, Fraud, and Extortion Racketeering, Fraud, and Extortion

In Cleveland, OH, the Northern

District of Ohio, a 45-count Federal grand

jury indictment was unsealed charging six

defendants in a wide-ranging public

corruption and fraud scheme, including

charges of conspiracy to commit

racketeering, extortion, and mail and wire

fraud in furtherance of the corrupt activity.

The indictment charged Nate Gray of

Cleveland, OH, an alleged coconspirator

of the recently convicted East Cleveland

Mayor Emmanuel Onunwor, Joseph Jones,

Ricardo Teamor, Monique McGilbra, Brent

Jividen, and Gilbert Jackson with, among

other things, providing numerous things of

value, including money and luxury items,

to public officials in return for official acts.

The charges in the indictment span multiple

States and set forth in detail a wide range

of corrupt activity. The indictment charges

that Nate Gray, who operated his business

in a Shaker Square, OH, office; Brent

Jividen, who worked in the Cleveland

office of a New Jersey company that

pursued public contracts; and Gilbert

Jackson, who is a senior vice president of

an international engineering firm,

conspired to violate racketeering laws from

at least the mid-1990s to the present.

It further charges that these three,

along with Cleveland City Councilman

Joseph Jones; Cleveland area lawyer and

businessman Ricardo Teamor, who served

as legal counsel for the Cuyahoga

Metropolitan Housing Authority (CMHA);

and Monique McGilbra, who headed the

Building Services Department for the City

of Houston, TX, committed numerous acts

of extortion and deprived the public of the

honest services of its public officials, using

the mails and telephones to further their

scheme. Examples of the extortion

payments to public officials alleged and

described in the indictment were as

follows:

 Numerous cash payments that Gray

made to Onunwor that were the

subject of Onunwor’s own trial and

conviction in the summer of 2004;

 Two football-related trips that Gray

and Jividen provided to McGilbra,

including a $4,500 weekend trip to the

2002 NFL Super Bowl in New

Orleans for McGilbra and her

boyfriend, who were entertained by

Jackson on their arrival;

 A $700 Louis Vuitton purse that

McGilbra selected for herself and Gray

purchased for her;

 A dinner costing nearly $1,000 that

Gray purchased for McGilbra and her

family in Miami Beach, FL, as well as

limousine service; and

 The $5,000 interest-free loan by Gray

and Teamor to Jones that was the

subject of Jones’ earlier indictment

and at least one other payment.
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 89

In addition to the conspiracy, extortion

and fraud charges, Gray is charged with

evading payment of more than $1.5 million

in back taxes due and owed the United

States during the same period as he ran his

corrupt racketeering enterprise described

in the indictment. The taxes due are a result

of the determination of Gray’s tax liability

following his conviction for tax evasion for

the years 1982, 1983, and 1984 on or about

December 13, 1990.

Francis G. Keough III, Director of The

Friends of the Homeless, Springfield, MA,

a HUD-funded long-term homeless shelter,

was arrested after a Federal indictment was

unsealed. Keough is charged with one

count of extortion. The charge stems from

Keough extorting $29,000 from Frank

Ware, owner of The Ware Group, Inc., a

construction contractor hired to do

renovations of the women’s shelter at 501

Worthington Street in Springfield on or

about April 23, 1999, while Keough

was building a summer home in

Charlestown, RI.

Disaster Recovery Assistance Disaster Recovery Assistance

Funds - State of New York Funds - State of New York

Wing K. Cheng of New York, NY,

owner of Well Planned New York City Co.,

Inc., a garment business located in Lower

Manhattan, was sentenced in Federal

Court to 2 years probation, a $5,000 fine,

restitution of $26,250, and a special

assessment of $100. Cheng previously pled

guilty in Federal Court to one count of theft

of government money in connection with

a scheme to defraud HUD and Empire

State Development Corporation (ESDC) of

Federal grant money made available after

the September 11, 2001, terrorist attacks to

provide assistance to certain businesses in

Lower Manhattan. After the September 11

terrorist attacks, the World Trade Center

Small Firm Attraction and Retention Grant

program (SFARG) was established by

ESDC to provide assistance to certain

businesses in Lower Manhattan that were

adversely impacted by the terrorist attacks.

The SFARG program is funded through a

$700 million appropriation from HUD.

Copyright, 2005. The Republican - Springfield, MA. Reprinted with permission.
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 90

In New York, NY, the Lower

Manhattan Development Corp. (LMDC)

received $2.7 billion of CDBG funds from

HUD to coordinate the rebuilding and

revitalization of Lower Manhattan after the

September 11, 2001, terrorist attacks on the

World Trade Center. From these CDBG

funds, LMDC created a grant program, the

goal of which was to retain and attract

residents to Lower Manhattan. The TwoYear Residents Grant was created by

LMDC to provide rental assistance to

residents of Lower Manhattan who agreed

to stay in a specified area within Lower

Manhattan for a minimum of 2 years. From

LMDC and HUD-OIG audit referrals,

HUD-OIG in New York/New Jersey

arrested and convicted numerous people

who fraudulently obtained the Two Year

Residents Grant. Due to numerous grants

disbursed by LMDC and many grantees

fulfilling the 2-year requirement, LMDC

initiated an Amnesty Program, through

which the grantees could return the grant

funds with no questions asked and

assurance that they would not be

prosecuted. Since February 2004, HUDOIG has been reporting the return of the

grant money received under the Amnesty

Program. From August to December 2004,

$220,873 was returned and reported by

LMDC.

False Statements False Statements

In Los Angeles, CA, Federal Court,

Central District of California, Rolina Brown

was charged by a Federal grand jury in a

three-count felony indictment, including

one count of conspiracy, one count of

making false statements, and one count of

making false claims. Brown, serving as

Chief Executive Officer for the Blue Collar

Connection (BCC), had received a

$1,050,000 grant from the Los Angeles

Homeless Services Authority (LAHSA).

The purported purpose of BCC was to offer

support to women who were homeless and

in need of assistance, including substance

abuse counseling, mental health treatment,

and/or other types of recovery support

services. LAHSA had paid BCC a total of

$458,517 from the $1,050,000 grant before

it withdrew funding due to inaccurate

information being reported by Brown.

In Cedar Rapids, IA, Federal Court,

Joyce Ashcraft pled guilty to making false

statements to HUD, identity theft, bank

fraud, and Social Security fraud. Ashcraft

stipulated that she submitted false

documents to Cedar Rapids Housing

Services to obtain a $24,660 housing

rehabilitation grant. She also admitted to

using credit cards she obtained in other

individuals’ names, making and

transacting counterfeit checks, embezzling

$10,000 from her husband’s Individual

Retirement Account, and falsely obtaining

State medical assistance. Ashcraft admitted

causing total losses of between $120,000

and $200,000.

Embezzlement/Theft

Embezzlement/Theft Embezzlement/Theft

In the Northern District of Ohio,

Cleveland, OH, Cecelia George, Charles

Reed, Sr., Charles Reed, Jr., and Willie

George were sentenced following their

earlier guilty pleas to conspiracy, relating

to the theft of government funds from East

Cleveland Community Development

Center. Charles Reed, Jr., was assessed

$100, Willie George was ordered to pay

$26,115 in restitution, Charles Reed, Sr.,

was ordered to pay $40,475 in restitution,

and Cecilia George was ordered to pay

$101,659 in restitution.

Cecilia George served as Community

Development Director for the City of East

Cleveland from November of 2000 to
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 91

December of 2001. While in that position,

George and her three coconspirators

defrauded the citizens of the City of East

Cleveland and HUD by embezzling and

otherwise stealing CDBG funds. Cecilia

George steered federally funded contracts

to “front companies” that were associated

with her family members and then

funneled the money back through those

companies to bank accounts under the

control of the Reed and George families. In

addition, the Reed and George families

falsified and forged documents to conceal

that they were benefiting from CDBG

funds.

Investigations Involving Public Investigations Involving Public

Officials Officials

In Springfield, MA, James Krzystofik,

former Deputy Director, Greater

Springfield Entrepreneurial Fund (GSEF),

a City of Springfield nonprofit

organization, was sentenced in U.S.

District Court, District of Massachusetts,

to 41 months confinement and 36 months

of supervised release upon completion of

sentence, ordered to pay a $300 special

assessment fee, and ordered to make

restitution of $723,553. Krzystofik

previously pled guilty to conspiracy and

other charges relating to the embezzlement

and theft of more than $700,000 in funds

received from the Small Business

Administration (SBA) and U.S.

Department of Commerce (DOC). GSEF

had also obtained $697,000 in Urban

Development Action Grant (UDAG) funds

for its startup costs. It had been determined

that much of the UDAG funds had been

used to cover shortages in the books, which

had to be presented to SBA and DOC

monthly. Kryzstofik was one of four public

officials working at GSEF to be convicted

and sentenced as a result of this

investigation. James W. Asselin, the former

GSEF Executive Director, was ordered to

serve 41 months confinement in Federal

prison and 3 years supervised release and

to repay $723,553 in restitution to the

Federal Government as well as a $300

special assessment fee; Cornell Lewis, a

former GSEF Board member, was

sentenced to 6 months home confinement

and 3 years probation and ordered to pay

a $5,000 fine, make restitution of $29,000,

pay a $300 special assessment fee, and serve

300 hours of community service; and

Salvatore Anzalotti, the former GSEF

Accountant, was sentenced to 6 months

home confinement, placed on additional 4

years probation, and ordered to make

restitution of $68,000 and pay a $300

special assessment fee.

In U.S. District Court at Chicago,

Chicago, IL, Deborah Ahmad Bey, also

known as Deborah Dunn, was indicted on

seven counts of bankruptcy fraud. According

to the indictment, Bey, a Chicago police

officer, and former owner of a HUDapproved nonprofit organization called

Developing Economical and Better Living,

Inc. (DEBL, Inc.), participated in the HUD

Bulk Sale program by purchasing multiple

discounted properties with the commitment

to rehabilitate and resell to median-level

income families. However, Bey refinanced

several of the discounted properties in her

own name, causing her to receive significant

profits. Bey filed multiple bankruptcy

petitions and allegedly failed to disclose

ownership of multiple properties and

significant amounts of cash from property

sales, rental income, and additional

employment. As a result, she was granted a

financial discharge of more than $56,000 in

debts and withheld more than $80,000 in

unreported income to the U.S. Bankruptcy

Court.
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 92

In Los Angeles, CA, in Federal Court,

Central District of California, Albert

Robles, former Treasurer and City

Councilmember for the City of South Gate,

CA, and two business partners, Edward

Espinoza and Michael Klistoff, were

indicted on 39 counts of mail fraud, wire

fraud, money laundering, and theft or

bribery concerning programs receiving

Federal funds. Robles used his political

office and influence to funnel money from

a variety of City projects to family, friends,

and business partners during the years

1998-2003. CBDG funds were used to fund

illegal contracts Robles arranged with his

business partners. It is estimated that Robles

personally received $1.2 million in proceeds

derived from these illegal contracts.

Erma Kendrick, former Executive

Director of Kern County Mental Health

Association (KCMHA), Fresno, CA, and

Edwina Jackson, former Assistant Executive

Director of KCMHA, were indicted by a

Federal grand jury in the Eastern District of

California on one count each of theft and

conspiracy. KCMHA was the recipient of a

HUD Supportive Housing Program grant

in the amount of $156,240. On May 16,

2002, KCMHA received $70,230 as part of

the grant for the purchase of a handicapaccessible van and to hire supporting staff.

Erma Kendrick and Edwina Jackson

diverted the $70,230 grant funds for a

purpose other than the intended use. The

$70,230 was used to pay for checks that

were written by KCMHA as part of its

participation as a “payee” in the Social

Security Administration “Payee” program.

More than $36,000 of the grant funds were

paid to a storeowner who had entered into

an agreement with KCMHA to cash checks

of KCMHA “payee” clients. Many of the

checks cashed by the storeowner came back

to him with nonsufficient funds, and the

$36,000 was paid to him to cover those

checks.

Conspiracy Conspiracy

In Tampa, FL, defendant Dean Ryan,

a general contractor was sentenced in U.S.

District Court, Middle District of Florida,

to one count of conspiracy to defraud the

U.S. Government and one count of paying

a bribe to a public official. Because Ryan

cooperated and testified on behalf of the

Government, Ryan was sentenced to 6

months house arrest and 5 years supervised

probation that cannot be reduced and

required to pay the City of Tampa $72,000

in restitution.

Defendant Steve Labrake, former

Director of Business and Community

Development for the City of Tampa, was

sentenced in U.S. District Court, Middle

District of Florida, on 30 counts including

conspiracy to defraud and commit offenses

against the United States, wire fraud,

receiving bribes as public officials, receiving

gratuities, theft or bribery concerning

programs receiving Federal funds, and

stealing public money. Labrake was

sentenced to 60 months incarceration in

the custody of the Federal Bureau of Prisons

and 36 months supervised probation and

ordered to pay the City of Tampa $142,000

in restitution.

Defendant Paulette Lynn McCarter

(Labrake), former Senior Redevelopment

Counselor, City of Tampa, was sentenced

on 28 counts including conspiracy to

defraud and committing offenses against

the United States, wire fraud, receiving

gratuities, theft or bribery concerning

programs receiving Federal funds, and

stealing public money. McCarter (Labrake)

was sentenced to 41 months incarceration

in the custody of the Federal Bureau of

Prisons and 36 months supervised

probation and ordered to pay the City of

Tampa $142,000 in restitution.
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 93

Defendant Chester Luney, former

Executive Director for Tampa Hillsborough

Action Plan (THAP), a nonprofit

organization, was sentenced on 19 counts,

including conspiracy to defraud and

commit offenses against the United States,

wire fraud, bribing a public official, giving

a gratuity to a public official, theft or

bribery concerning programs receiving

Federal funds, and stealing public money.

Luney was sentenced to 33 months

incarceration in the custody of the Federal

Bureau of Prisons and 36 months

supervised probation and ordered to pay

the City of Tampa $142,000 in restitution.

The investigation revealed that

defendants Labrake, McCarter, Luney, and

Ryan conspired to defraud HUD for their

personal benefit using HOME and CDBG

funds. Labrake and McCarter had Ryan

build their home in exchange for 15 HUDfunded contracts with an additional $3,000

built into the contract for Ryan. Ryan was

required to pay thousands of dollars for

Labrake’s and McCarter’s personal debts.

Labrake directed Luney to pay Ryan

$30,000 from HUD funds in furtherance

of the scheme. Luney, through THAP,

received additional funds from the City of

Tampa by padding its property acquisition

costs. Luney used HUD funds to pay

employees and supply costs to build

Labrake’s and McCarter’s home, valued at

$670,000. As a result of this investigation,

the City of Tampa is repaying HUD $4.5

million for funds misappropriated under

the direction of Labrake while serving as a

City official. Additional funds are expected

to be repaid to HUD based upon the sale

of properties acquired under LaBrake that

were deemed ineligible acquisitions.

  

Chapter 6

Other Significant HUD Audits and

Investigations/OIG Hotline
Other Audits & Investigations/OIG Hotline

Other Significant HUD Audits and Investigations/OIG Hotline 96

The chart cost figures in this chapter represent the actual monetary benefits for all reports issued during

this semiannual period. The monetary benefits shown in the Profile of Performance represent only those

reports with management decisions reached during this semiannual period. Because there is a time lag

between report issuance and management decisions, the two totals will not agree.

Audits

During this reporting period, the Office

of Inspector General (OIG) issued 10

reports: 9 internal audits and 1 external

audit involving areas of U.S. Department

of Housing and Urban Development

(HUD) operations that do not fall under

major HUD programs reported in previous

chapters.

OIG audited HUD and Government

National Mortgage Association (Ginnie

Mae) financial statements; reported on

KPMG, LLP’s audit of the Federal Housing

Administration’s (FHA) financial

statements; and audited the travel card

program, the purchase card program, the

information security program, and

information systems. Our more significant

audits are discussed below.

Report on the U. S. Department Report on the U. S. Department Report on the U. S. Department

of Housing and Urban of Housing and Urban

Development Development Development’s Fiscal Year 2004 s Fiscal Year 2004

Financial Statements Financial Statements

Our report on HUD’s fiscal year (FY)

2004 financial statements is included in

HUD’s FY 2004 Performance and

Accountability Report. For FY 2004, The

Office of Management and Budget (OMB)

directed agencies to complete their

Performance and Accountability Reports and

submit them to the President, OMB, and the

Congress by November 15, 2004, thereby

requiring that we complete our work by that

date.

We were unable to express an opinion

on HUD’s FY 2004 principal financial

statements for the following reasons:

 Final consolidated financial statements,

reflecting all material proposed

adjustments and related disclosures,

were not presented to the OIG

auditors in time to allow us to apply

all the procedures necessary to meet

government auditing standards and

render an opinion in time to meet the

OMB-required reporting date.

 We were unable to obtain sufficient

competent evidential matter in a timely

manner to satisfy ourselves that HUD’s

obligation transactions and balances

were supported by appropriate source

documents. Department officials were

unable to retrieve documents supporting significant project-based Section 8

obligations in a timely manner. In

addition, we experienced delays in

Chart 6.1: Other Audit Reports Issued

 Internal Reports External Reports

1

9

 Questioned Costs Funds Put to Better Use

Chart 6.2: Other Audit Dollars Chart 6.2: Other Audit Dollars

750,000,000

600,000,000

450,000,000

300,000,000

150,000,000

0 Internal Reports External Reports
Other Audits & Investigations/OIG Hotliine

Other Significant HUD Audits and Investigations/OIG Hotline 97

obtaining underlying support for

significant balances pertaining to the

Section 236 interest reduction

payments.

 We were unable to obtain sufficient

competent evidential matter in a timely

manner to satisfy ourselves that Note

17 on Rental Housing Subsidy Payment

Errors was supported by appropriate

source documents. Department

officials were unable to complete the

supporting studies or provide adequate

supporting documentation in a timely

manner to allow us to apply all the

procedures necessary to meet

government auditing standards.

 Interim milestone dates associated with

the accounting firm of KPMG, LLP’s

audit of FHA’s financial statements

were missed because of (1) the late

receipt of the Mutual Mortgage

Insurance Fund actuarial study, which

is critical to completion of audit work

relating to the Single Family Liability

for Loan Guarantees, and (2) material

errors found in the calculation and

reporting of the FHA Multifamily

Liability for Loan Guarantees and Loan

Loss Reserve for its Mark-to-Market

loan portfolio risk category. Missing

interim milestone dates with the FHA

audit contributed to the Department’s

missing agreed-upon milestone dates

associated with consolidating FHA’s

financial statements with those of the

remainder of the Department.

In a separate report issued by OIG, we

provided additional details concerning our

audit of HUD’s FY 2004 Financial

Statements. The report describes three

material weaknesses in internal controls

related to the need to (1) comply with Federal

financial management system requirements,

including the need to enhance FHA

information technology systems to more

effectively support FHA’s business and

budget processes; (2) improve oversight and

monitoring of subsidy calculations and

intermediaries’ program performance; and

(3) improve FHA’s management review over

the credit reform estimation process.

Reportable conditions in internal controls in

FY 2004 related to the need to (1) improve

quality control over performance measures

data reliability; (2) strengthen controls over

HUD’s computing environment; (3) improve

personnel security practices for access to the

Department’s critical financial systems; (4)

improve processes for reviewing obligation

balances; (5) improve controls for developing

estimates of budget authority required for the

Section 236 Interest Reduction Program; (6)

more effectively manage controls over the

FHA systems’ portfolio; and (7) place

more emphasis on monitoring lender

underwriting, continue to improve early

warning processes, and establish effective

loan portfolio risk assessment tools for

single-family insured mortgages. In addition,

our reportable condition on improving the

processes for reviewing obligation balances

identified $708 million in monetary benefits,

which we reported as “funds to be put to

better use.”

Most of these control weaknesses were

reported in prior efforts to audit HUD’s

financial statements and represent longstanding problems. Our findings also

include the following instance of

noncompliance with applicable laws,

regulations, and provisions of contracts

and grant agreements that are required to

be reported under government auditing

standards or OMB Bulletin No. 01-02. HUD

did not substantially comply with the Federal

Financial Management Improvement Act. In

this regard, HUD’s financial management

systems did not substantially comply with
(1) Federal Financial Management System

requirements and (2) applicable accounting

standards.

The audit discusses each of these

conditions in detail, provides an assessment

of actions taken by HUD to mitigate them,

and makes recommendations for corrective

actions. During the course of the audit, OIG

also identified several matters that were not

material to the financial statements and were

separately communicated to HUD

management (Audit Report: 2005-FO-0003).

Federal Housing Administration Federal Housing Administration

Financial Statements Audit

Financial Statements Audit Financial Statements Audit

We reported on the results of KPMG,

LLP’s audit of FHA’s financial statements for

the years ending September 30, 2004 and

2003.

In KPMG’s opinion, the financial

statements present fairly, in all material

respects, FHA’s financial position as of

September 30, 2004 and 2003, and its net

costs, changes in net position, budgetary

resources, and reconciliation of net costs to

budgetary obligations for those years in

conformity with accounting principles

generally accepted in the United States of

America.

The report identifies two material

weakness and two reportable conditions on

internal control, discusses each of these

conditions in detail, provides an assessment

of actions taken by FHA to mitigate them,

and makes recommendations for corrective

actions. The material weaknesses in internal

controls in FY 2004 related to the need to (1)

comply with Federal financial management

system requirements, including the need to

enhance FHA information technology

systems to more effectively support FHA’s

business and budget processes, and (2)

improve FHA’s management review over the

credit reform estimation process. Reportable

conditions in internal controls in FY 2004

related to the need to (1) more effectively

manage controls over the FHA systems’

portfolio and (2) place more emphasis on

monitoring lender underwriting, continue to

improve early warning processes, and

establish effective loan portfolio risk

assessment tools for single-family insured

mortgages. The report also identifies

one reportable instance of potential

noncompliance with laws, regulations,

contracts, and grant agreements that KPMG

tested. During the course of the audit, KPMG

also noted other internal control matters that

are not material to the financial statements

and are being separately communicated to

FHA management. (Audit Report: 2005-

FO-0002)

Government National Mortgage Government National Mortgage

Association Financial Statements Association Financial Statements

Audit

Audit

In accordance with the Government

Corporation Control Act, as amended, we

audited the Ginnie Mae financial statements.

This report presents the results of our audit

of Ginnie Mae’s principal financial statement

for the year ending September 30, 2004. Also

provided are assessments of Ginnie Mae’s

internal controls and compliance with laws,

regulations, and provisions of contracts that

could have a direct and material effect on its

financial statements. Our report includes a

copy of Ginnie Mae’s principal financial

statements for the years ending September

30, 2004 and 2003. However, the objective

of our audit was to express an opinion on

the fair presentation of these financial

statements.

Other Audits & Investigations/OIG Hotline

Other Significant HUD Audits and Investigations/OIG Hotline 98
We found that Ginnie Mae’s financial

statement is presented fairly, in all material

respects, in conformity with the U.S.

generally accepted accounting principles.

Our consideration of internal control over

financial reporting would not necessarily

disclose all matters in the internal control over

financial reporting that might be material

weaknesses under standards issued by the

American Institute of Certified Public

Accountants. However, we noted no matters

involving the internal control and its

operation that we considered to be material

weaknesses. We noted no matters material

to the financial statement that require

recommendations in this report. (Audit

Report: 2005-FO-0001)

Travel Card Program Audit

Travel Card Program Audit Travel Card Program Audit

We audited HUD’s travel card program

to determine whether sufficient management

controls were implemented to effectively

detect inappropriate transactions.

HUD needs to improve management

controls over the travel card program’s

training and monitoring functions. Although

we found that cardholders traveling on

official Government business generally used

the card in accordance with governing

policies, we estimated that 6.3 percent of the

transactions processed during the audit

period (January 2002 through September

2003) were improper in that they were for

personal use—purchases or cash advances

not associated with official Government

travel. Additionally, cardholder accounts

were not always closed in a timely manner

when HUD employment was terminated and

when cardholders were issued a new travel

card.

We recommended that HUD improve

its travel card training and monitoring

program and more equitably distribute the

number of cardholders assigned to each

administrative officer for monitoring. We also

recommended that HUD establish

procedures to ensure that (i) travel card

accounts are canceled when employees

separate from HUD and (ii) employees are

not issued more than one travel card. (Audit

Report: 2005-DP-0002)

Purchase Card Program Audit

Purchase Card Program Audit Purchase Card Program Audit

We audited HUD’s purchase card

program to determine whether actions taken

on the recommendations made in a 2003

audit report issued by the U.S. Government

Accountability Office (GAO) on HUD’s

purchase card program resulted in better

program management and were effective in

preventing or detecting inappropriate use.

We found that the actions taken to

resolve the issues reported in the 2003 GAO

audit report have resulted in significant

improvement in the overall management

of the purchase card program. HUD has

developed and put into operation several

policies designed to improve card

transaction approval, review, monitoring,

and training procedures. While these

actions have reduced the frequency of

improper and questionable purchase card

transactions reported in the 2003 report, we

still found instances of questionable activity.

We also found administrative weaknesses

associated with documentation

maintenance, statement reconciliations,

delegations of authority, and the payment

of sales tax.

We recommended that HUD improve

controls over purchase card program

administrative functions by making sure

monitoring procedures include detailed

Other Audits & Investigations/OIG Hotliine

Other Significant HUD Audits and Investigations/OIG Hotline 99
reviews of documentation maintenance,

statement reconciliations, delegations of

authority, and sales tax payments. (Audit

Report: 2005-DP-0003)

Information Security Program Information Security Program

Evaluation Evaluation

The Federal Information Security

Management Act of 2002 (FISMA) requires

the OIG to perform an annual independent

evaluation of HUD’s information security

program and practices. Our testing found

weaknesses in network security that we

reported to the Acting Director for

Information Technology Operations in a

memorandum, dated August 6, 2004. Other

weaknesses in information system security

are reported in our audit report entitled FY

2004 Review of Information Systems Controls

in Support of the Financial Statement Audit.

Generally, we reported that improvements

are needed in network security, contingency

planning for information systems, and the

agencywide information system security

program. In our assessment, HUD has not

documented and implemented an

agencywide information security program in

a timely manner as specified in section 3544(b)

of FISMA and has not fully established the

minimum set of controls provided in

appendix III to Office of Management and

Budget (OMB) Circular A-130, Security of

Federal Automated Information Resources.

However, HUD has taken steps to improve

information system security and has made

commendable efforts to improve its

organization for an effective information

system security program. (Audit Report:

2005-DP-0801)

Information Systems Review Information Systems Review

We reviewed general and application

controls for selected information systems as

part of the OIG’s audit of HUD’s financial

statements for FY 2004. We found

weaknesses and deficiencies in controls. The

weaknesses and deficiencies in controls are

related to HUD’s noncompliance with

(i) requirements for internal controls

established by OMB, (ii) guidance for

securing information systems issued by the

National Institute of Standards and

Technology (NIST), and (iii) HUD’s own

policies and procedures. We recommended

that the Assistant Secretary for

Administration/Chief Information Officer

ensure that OMB requirements, FISMA,

NIST guidelines, and HUD’s own internal

policies and procedures are implemented.

The Assistant and Deputy Assistant

Secretary for Administration/Chief

Information Officer concurred with all

applicable recommendations. (Audit Report:

2005-DP-0001)

Other Audits & Investigations/OIG Hotline

Other Significant HUD Audits and Investigations/OIG Hotline 100
Other Audits & Investigations/OIG Hotliine

Other Significant HUD Audits and Investigations/OIG Hotline 101

Investigations Investigations Investigations

During this reporting period, the OIG

opened 13 investigation cases and closed

8 cases involving areas of HUD operations

that do not fall under specific program

categories. Judicial action taken on

these cases during the period included

$186,618 in investigative recoveries,

seven indictments/informations, four

convictions/pleas/pretrial diversions, nine

administrative actions, six personnel

actions, and seven arrests.

Some of the investigations discussed

in this report were conducted by OIG,

while others were conducted jointly with

Federal, State, and local law enforcement

agencies. The results of our more significant

investigations are described below.

Conspiracy and Money Laundering Conspiracy and Money Laundering

In Tampa, FL, defendant William

Jones was sentenced in U.S. District Court,

Middle District of Florida, to 108 months

incarceration and 24 months supervised

release and ordered to pay $77.9 million

in restitution. Jones previously pled guilty

to one count of conspiracy to defraud the

United States and two counts of making

false statements to HUD. Jones was the

General Manager of GreatStone Mortgage

and coconspired with several other subjects

in defrauding FHA, Ginnie Mae, and

Warehouse Lenders, causing one of the

largest schemes and financial losses

involving HUD’s Streamline Refinance

program in HUD’s history.

GreatStone packaged and pooled more

than $52 million worth of loans, which it

certified to Ginnie Mae met the FHA

criteria. Ginnie Mae has had to purchase

$38 million in loans that did not meet FHA

criteria from the portfolio. All of the loans

purchased have property attached and

some are performing loans. As of March

31, 2005, Ginnie Mae has written off losses

of $488 thousand and has a remaining

whole loan asset of $24.5 million.

Signatures would then be forged on the

altered/counterfeit loan documents, and

the subjects would use the fraudulent

documents to warehouse lenders to draw

down on their lines of credit. The proceeds

were then wired into accounts controlled

by the subjects and ultimately laundered.

The subjects laundered funds into the

Cayman Islands. They created fictitious title

companies, Ginnie Mae document

custodians, and Ginnie Mae security trade

tickets. FHA was victimized by the

subject’s loan origination fraud schemes

and endorsed more than 10,000 loans, which

included thousands of loans not conforming

to FHA underwriting guidelines. GreatStone

provided fraudulent audited annual

financial statements to Ginnie Mae, which

concealed and failed to include accurate

financial information about the liabilities of

GreatStone.

Personnel Action Personnel Action

A HUD employee, a GS-12 construction

analyst, in Houston, TX, was sentenced to

one year of confinement in a Texas

Department of Corrections State jail. The

employee pled guilty to two counts of felony

forgery in a District Court in Houston, TX ,

and will serve the sentences concurrently. The

guilty plea resulted from two indictments

handed down in September 2003.

The investigation disclosed that the

HUD employee passed two counterfeit

cashier’s checks in the amount of $10,000 each

for the downpayment on a conventional

home loan. The employee indicated to

investigators that the checks were given to

him as payment for architectural work

performed during nonduty hours for an

outside party.
Other Audits & Investigations/OIG Hotline

Other Significant HUD Audits and Investigations/OIG Hotline 102

Shortly before sentencing, the employee

was sent a memorandum by HUD which

proposed his removal for engaging in conduct

unbecoming a Federal employee, citing the

felony forgery, committing a State

misdemeanor by his fraudulent use of a false

“registered architect” stamp, engaging in

prohibited outside architectural work for

coworkers, and making false statements to

investigators before admitting he altered a

college diploma to show he received a degree

in architecture.

Bid Rigging and Theft

Bid Rigging and Theft Bid Rigging and Theft

In Philadelphia, PA, HUD real estateowned preservation and protection

contractors John and Rita Mancinelli,

doing business as R.A. Property Services,

were sentenced in U.S. District Court,

Eastern District of Pennsylvania, based on

their previous admission of guilt to

involvement in a bid rigging scheme. John

Mancinelli was sentenced to 6 months

incarceration, to be followed by 12 months

supervised release. Rita Mancinelli was

sentenced to 18 months of supervised

release. Further, they were ordered to pay

$17,000 in restitution to HUD, which

represents the amount of money that HUD

was overcharged.

The investigation determined that,

during the latter part of 1999, the

Mancinellis created and submitted false

bidding documents on behalf of

nonexistent competitors to obtain HUDfunded property preservation work,

including cleanouts and winterization, in

excess of $200,000. Since they were

manipulating the bidding, there was no

incentive to keep costs down, and it was

eventually determined that they had

overcharged HUD by at least $17,000. John

Mancinelli had been previously convicted

for identical illegal activity in an OIG

investigation 7 years earlier.

In Baltimore, MD, Maryland Circuit

Court, Baltimore County, defendant Robert

Miller, who had previously pled guilty to

various felony theft charges in connection

with theft of funds from prospective

purchasers of HUD and Department of

Veterans Affairs (VA) foreclosed

properties, was sentenced to 12 years

incarceration. Investigation by HUD-OIG

and the Maryland State Attorney General

determined that in 2001 and 2002, Miller

at various times, falsely represented

himself as a realtor, lawyer, mortgage

broker, or investor, inducing at least 17

individuals to provide downpayments

toward the purchase of a HUD- or VAowned property, when he had no fiduciary

interest in any of the properties. Miller stole

at least $43,840 from these individuals and

used the money for his personal benefit.

Child Exploitation Child Exploitation

HUD-OIG Special Investigations

Division (SID), Washington, DC, conducted

a joint investigation with the Commonwealth

of Pennsylvania, Office of the Attorney

General, Bureau of Criminal Investigation

(BCI), Child Sexual Exploitation Unit, to

identify and expose a HUD employee using

his HUD computer to send sexually explicit

and pedophilic e-mails to an individual,

whom the HUD employee believed was

the father of three minor children, who

would permit the employee to have sexual

relations with the children. In fact, the

HUD employee was communicating with a

BCI undercover agent.

In an arrangement devised by SID and

BCI, HUD-OIG and SID Special Agents

caught the HUD employee at his desk at

the HUD Philadelphia Home Ownership

Center while in the act of attempting to

download a file the employee believed

contained a photograph of the children.

SID obtained an admission from the HUD
Other Audits & Investigations/OIG Hotliine

Other Significant HUD Audits and Investigations/OIG Hotline 103

employee as to his involvement in the

sending of sexually explicit and pedophilic

e-mails from his HUD computer and

recovered corroborating forensic evidence.

The HUD employee resigned after

pleading guilty to violation of Title 18,

Pennsylvania Consolidated Statutes,

Section 901/6318, Criminal Attempt/

Unlawful Contact with Minor, a felony. In

February 2005, the defendant was

sentenced to a term of imprisonment in the

custody of the Pennsylvania Department

of Corrections for a period of not less than

12 months and not to exceed 120 months,

to be followed by a term of probation of 10

years. The defendant was also required to

register as a sex offender. Before imposing

the sentence, the presiding judge described

the e-mails sent by the defendant from his

HUD computer as “the most disgusting

thing I’ve heard a human being say they

would do to children,” noting that the emails “went from bad to worse to

disgusting to monstrous.” The judge

described the defendant as a “clear and

present danger to the children of the

Commonwealth of Pennsylvania.”

Assault

Assault Assault

In Boston, MA, Antonio Loura, former

Section 8 landlord, was indicted by a grand

jury in the District of Massachusetts,

Boston, MA. Loura was indicted on one

count of assault on a Federal officer. Loura

was indicted after he allegedly threatened

two HUD-OIG Special Agents with a knife

while the agents were interviewing Loura.
Other Audits & Investigations/OIG Hotline

Other Significant HUD Audits and Investigations/OIG Hotline 104

OIG Hotline OIG Hotline

In August 2004, the OIG Hotline was

combined with a new fraud prevention

initiative to form the Program Integrity

Division (PID). The PID has a Director and

seven full-time employees. The seven

employees concentrate on Hotline-related

work, which includes taking allegations of

waste, fraud, abuse, or mismanagement in

HUD or in HUD-funded programs from

HUD employees, contractors, and the

public and coordinating reviews with

internal audit and investigative units or

with HUD program offices. The Hotline is

operational 5 days a week, Monday

through Friday, from 10:00 a.m. to 4:30

p.m., Eastern Time.

During this reporting period, the

Hotline has received and processed 8,998

complaints—76 percent received by

telephone, 21 percent by mail, and 3 percent by e-mail. The Hotline also interviewed one individual who visited HUD

headquarters to register a complaint about

program operations. Every allegation

received by the Hotline is logged into a

database and tracked.

Of the complaints received, 883 were

related to the mission of OIG and were

addressed as Hotline cases. Hotline cases

are referred to OIG’s Offices of Audit and

Investigation or to HUD program offices

for action and response. The following

illustration shows the distribution of

Hotline case referrals by percentage.

The Hotline closed 657 cases this

reporting period. The closed Hotline cases

included 99 substantiated allegations. The

substantiated allegations resulted in 13

administrative sanctions against HUD

employees for personnel violations or

investors for improprieties involved in the

purchase of a home. The Department also

took 86 corrective actions that resulted in

$117,226 in recoveries of losses and

$1,824,881 in HUD funding that could be

put to better use.

Chart 6.2: Hotline Cases Opened by Program

Public and Indian

Housing

48%

Multifamily

Housing

15%

Single Family

Housing

11%

Community

Planning &

Development

5%

Other HUD

Offices

7%

OIG Audit &

Investigation

14%
Other Audits & Investigations/OIG Hotliine

Other Significant HUD Audits and Investigations/OIG Hotline 105

Chart 6.3: Hotline Dollar Impact from HUD Program Offices Chart 6.3: Hotline Dollar Impact from HUD Program Offices

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0 0

474,746

44,431

300,282

72,795

1,049,853

Recoveries $117,226 Funds Put to Better Use $1,824,881

The recoveries included Section 8

tenants, who must reimburse housing

authorities for assistance to which they

were not entitled, based on improper

reporting of income or household

composition. Some of the funds that could

be put to better use were the result of cases

in which homebuyers submitted false

documentation to qualify to purchase

homes financed by FHA loans. The

following chart illustrates the issue

breakdown of the substantiated allegations

by percentage.

Chart 6.4: Substantiated Cases by Type of Complaint Received by Hotline

Rental Fraud &

Improprieties

72%

Other

3%

Employee

Misconduct

7%

False

Statements

4%

Owner/Occupant

Violations

7% Mismanagement

7%

  

Chapter 7

Outreach Efforts
Outreach Efforts

Outreach Efforts 108

T o foster cooperative,

informative, and mutually

beneficial relationships with agencies and

organizations whose intent is to assist in

the accomplishment of the U.S. Department

of Housing and Urban Development’s

(HUD) mission, the Office of Inspector

General (OIG) participates in a number of

special outreach efforts. These efforts, as

described below, are in addition to our

regular coordination with Federal, State,

and local law enforcement agencies; other

OIGs; and various congressional

committees and subcommittees. During

these outreach efforts, we not only present

the results of our audit and investigative

work and discuss our goals and objectives;

we also provide information about OIG’s

role and function.

Inspector General (IG) Kenneth

Donohue spoke at a press conference in

Worcester, MA, to an audience of 60

individuals from the local television

stations, newspapers, and radio stations

and residents of the Worcester Housing

Authority (WHA) at the Great Brook

Valley Public Housing Development. IG

Donohue announced three new HUD-OIG

initiatives. The first was an agreement

signed between HUD-OIG, WHA, and the

Massachusetts Department of Revenue

that will allow the WHA to match reported

tenant income against the State wage data.

The WHA is the first public housing

authority in Massachusetts to be able to do

income matching. The second was the

success of the ongoing efforts of HUD-OIG,

the WHA Public Safety Department, the

Worcester Police Department (WPD), and

the Massachusetts State Police (MSP)

Violent Fugitive Apprehension section to

arrest fugitive felons living in either public

housing or Section 8 units. The operation

has resulted in more than 50 arrests. The

third was the continuing efforts of

HUD-OIG, the WHA Public Safety

Department, and the WPD in addressing

the illegal/unauthorized residents living in

WHA public housing developments,

resulting in their eviction or inclusion on

the lease.

Also speaking at the press conference

were U.S. Congressman James McGovern;

Raymond Mariano, Executive Director,

WHA; Worcester Police Chief Gary

Gemme; and representatives from, the

Worcester County District Attorneys

Office and the WHA Board of

Commissioners. All the speakers praised

the cooperation among the various

agencies. After the press

conference, IG Donohue

presented the WPD Gang Unit

with a plaque to recognize its

“Dedication and Commitment to

the Children Living in Worcester

Public Housing Communities.”

IG Donohue visited the WPD

summer camp last summer and

wanted to officially recognize

their efforts.

Inspector General Kenneth Donohue addresses the

Worcester Housing Authority.
Outreach Efforts

Outreach Efforts 109

Additionally, IG Donohue was the

guest speaker on a Worcester radio talk

show WTAG 580 with Raymond Mariano

and Jordan Levy, the host of the show. IG

Donohue discussed the role of HUD-OIG

and the success of HUD-OIG initiatives in

Worcester and throughout the country.

IG Donohue, along with OIG

Assistant Special Agent in Charge (ASAC)

Ruth Valdes, met with the Palm Beach

County, FL, Sheriff Ric Bradshaw and

presented an appreciation plaque to Palm

Beach County Sheriff’s Colonel Michael

Gauger, honoring him for his work as a

Fraud Investigator at the Palm Beach

County Housing Authority over the last

year. Colonel Gauger is a 33-year employee

of the Sheriff’s Office who worked recently

with HUD-OIG addressing Section 8

subsidized fraud as part of the Section 8

Fraud Initiative. Colonel Gauger promised

continual support of OIG’s initiative

through the Sheriff’s Office Community

Policing program. IG Donohue addressed

press issues during the presentation from

the Palm Beach Post and the local Channel

9 TV station, which provided positive

information relating to the national Section

8 Fraud Initiative.

On the same day, IG Donohue

and ASAC Valdes met with Palm

Beach County Housing Authority

Executive Director (ED) Barry

Seaman to discuss additional

strategies to address tenant fraud in

Authority developments. ED

Seaman thanked IG Donohue for

OIG’s support in addressing Section

8 subsidized tenant fraud, and IG

Donohue pledged continual OIG

support through the Authority’s

Section 8 Fraud Initiative.

Special Agent In Charge (SAC)

Peter Emerzian, Regional Inspector

General for Audit (RIGA) John Dvorak,

and ASAC Maureen Nelting gave a

presentation, “Tackling Fraud in Public

Housing,” to approximately 150 members

attending the midwinter conference of

the New England Council of the

National Association of Housing and

Redevelopment Officials being held in

Uncasville, CT. SAC Emerzian discussed

OIG’s upcoming Rental Subsidy Fraud

Initiatives, as well as the mission of the IG.

ASAC Nelting discussed tenant, landlord,

and public housing authority employee

fraud. RIGA Dvorak talked about the

Office of Audit, management controls, and

Web sites that may be helpful.

SAC Emerzian and ASAC Diane H.

DeChellis of HUD-OIG met with

Boston, MA, Police Department (BPD)

Superintendent Paul F. Joyce, Jr., and

Deputy Superintendent Paul A. Fitzgerald

to discuss HUD-OIG’s authority and

mission, as well as to discuss the benefits

of cooperation between HUD-OIG and the

BPD. During this meeting, discussions

included developing a Fugitive Felon

Initiative involving BPD, Boston

Housing Authority (BHA) Police, MSP and

HUD-OIG in Federal housing sites in

Boston.

Inspector General Kenneth Donohue at the Worcester

police department summer camp.
In Framingham, MA, SAC Emerzian

and ASAC DeChellis met with MSP Lt.

Colonel John D. Kelly, Detective Captain

Brian X. Lilly, and Detective Captain

Michael J. Saltzman to discuss HUD-OIG’s

authority and mission, as well as to discuss

the benefits of cooperation between HUDOIG and the MSP. During this meeting,

discussions included developing a Fugitive

Felon Initiative in Federal housing sites in

the State of Massachusetts with the MSP,

HUD-OIG, and local police departments in

Massachusetts.

In Boston, MA, SAC Emerzian and

ASAC DeChellis met with BPD

Commissioner Kathleen O’Toole and

Superintendent Paul F. Joyce, Jr., to discuss

OIG’s authority and mission, as well as to

discuss the benefits of cooperation between

OIG and the BPD. During this meeting,

discussions included developing a Fugitive

Felon Initiative involving BPD, BHA Police,

MSP, and OIG in Federal housing sites in

Boston, MA.

In Boston, MA, SAC Emerzian invited

Julie Shaffer, Director, Quality Assurance

Division, to meet with the Boston Office of

Investigation in an effort to generate

additional single-family investigations in

Region 1. As a result, Ms. Shaffer discussed

single-family fraud trends in Region 1 and

provided training on the availability and

use of the computerized single-family

programs. Ms. Shaffer also answered

program questions relating to ongoing

single-family investigations in New

England.

SAC Emerzian, ASACs Dechellis and

Nelting, Acting RIGA Heath Wolfe, and

Director of HUD’s Quality Assurance

Division Julie Shaffer made a joint HUD

and OIG presentation to the Massachusetts

Board of Real Estate Appraisers’ conference

held in Dedham, MA. The presentation

was well attended with more than 150

appraisers at the conference. SAC

Emerzian provided an overview of the OIG

and presented a case study on a

single-family investigation involving

appraisers. RIGA Wolfe and ASAC

Dechellis discussed the respective roles of

the Offices of Audit and Investigation.

ASAC Nelting detailed the investigative

methods and criminal schemes common in

single-family investigations. Ms. Shaffer

provided guidance to program problems

encountered by the appraisers. At the

conclusion of the presentation there was a

question and answer session with the OIG

staff and Ms. Shaffer. The highlight was at

the end of the presentation when one of

the appraisers thanked HUD and our staff

for “helping prevent America’s

neighborhoods from becoming slums.”

SAC Nadine Gurley made a

presentation in Columbia, SC, on singlefamily fraud to the South Carolina

Appraisal Institute. SAC Gurley discussed

fraud awareness regarding loan

origination fraud and common schemes

used in committing mortgage fraud.

Approximately 65 appraisers representing

all areas of South Carolina attended the

presentation.

In Uncasville, CT, SAC Emerzian,

RIGA John Dvorak, and ASAC Nelting

spoke at the New England Council of the

National Association of Housing and

Redevelopment Official’s Conference on

“Protecting Your Agency from Fraud.” The

presentation briefly covered what

constitutes fraud, highlighted several case

studies that were successfully prosecuted,

and emphasized that in preventing fraud,

sound management controls are critical to

housing due to the nature of their activities

and the relatively large amount of HUD

funds handled. There were approximately

160 persons who attended this conference.

Outreach Efforts

Outreach Efforts 110
ASAC Lori J. Chan and Special

Agents (SAs) Keith Fong and Eric Huhtala

met with the Chief of Police for the

Sacramento, CA, Police Department.

During the meeting, they gave the Chief

an overview of the functions of OIG and

informed him of various programs to

include Section 8 and Fugitive Felon. The

Chief invited them to attend his INFOTEC

meeting later that day where they gave

the same presentation to all of the

Commanding staff of the Sacramento

Police Department. Approximately 30

individuals were in attendance to include

the Chief, his Deputy Chiefs, Captains,

Lieutenants, and some Sergeants. The

presenters received positive feedback, made

contacts, and exchanged business cards.

In San Juan, PR, ASAC Noel Rosario

and SA Edwin Bonano met with Lt. Garcia,

Director of the Puerto Rico Police

Extraditions and Special Arrest Unit. The

main purpose of this meeting was to

explain and discuss OIG’s authority and

the Fugitive Felon Initiative, which

involved the local police, and HUD-OIG

investigations in public housing

areas. ASAC Rosario and SA

Bonano provided Lt. Garcia with

a list of the fugitive felons wanted

by other local and Federal

authorities. An agreement was

made to work jointly on this

initiative. A few days later, with

the assistance of Lt. Garcia’s

group, OIG was able to arrest three

of the most wanted fugitive felons.

In San Juan, PR, ASAC Noel

Rosario and SA Bonano met with

the Commissioner of the Financial

Institutions, Mr. Alfredo Padilla, and Mr.

Aponte Asdrubal, Director of Enforcement

of the institution. During the meeting, there

was a discussion of the HUD-OIG mission

and authority and the need for joint efforts

between OIG and the Commission of

Financial Institutions to combat the

existing fraud scheme on the single-family

housing loan programs. The Commissioner

and the Director of Enforcement agreed to

provide help on this Mortgage Fraud

Initiative.

As part of HUD-OIG’s outreach

program, ASAC George Dobrovic and SA

Patrick Jefferson provided a presentation

on trends in mortgage fraud to the

Mortgage Society of Ohio (MSO), held at

the Holiday Inn, Independence, OH. The

MSO is a nonprofit organization of financial

institutions, title companies, mortgage

companies, and credit reporting agencies,

which holds monthly meetings to provide

its membership with topics of interest to

improve customer service. The issue of OIG

becoming a trusted resource and partner

in the barrier against FHA loan fraud was

stressed, with the association president

requesting a return presentation in 2005.

Approximately 40 people were in

attendance.

Outreach Efforts

Outreach Efforts 111

SAC Emerzian presenting at the New England Council

of the National Association of Housing and Redevelopment Official’s Conference on “Protecting Your Agency

from Fraud.”
Region 6 ASAC Brad Geary provided

a presentation involving HUD and

bankruptcy fraud to the U. S. Trustee’s

Office at the Department of Justice

National Advocacy Center in Columbia,

SC. The session concentrated on the role

that HUD-OIG plays in investigating real

estate schemes and how fraud and false

statements within the U.S. Bankruptcy

Court play a role in these frauds.

Approximately 50 people were in

attendance.

In furtherance of the HUD’s National

Fugitive Felon Initiative, beginning in

March of 2005, HUD-OIG Special Agents

implemented the Louisiana National

Fugitive Felon Initiative. Along with

members of the United States Marshals

Service (USMS), two sweeps have been

conducted in New Orleans, LA, in public

housing and Section 8 programs, resulting

in five arrests of individuals who are

wanted either locally or nationally. These

individuals will be referred for eviction

through the Housing Authority of New

Orleans. This initiative is ongoing and will

be worked throughout the State of

Louisiana in an effort to eradicate wanted

persons from public housing and Section 8

programs. HUD-OIG, along with members

of USMS, led this initiative.

Television court Judge Joe Brown was

in Indianapolis, IN, to accept honors from

city officials and HUD-OIG for helping to

bring attention to housing fraud. The

Indianapolis, IN, Housing Agency

presented Brown with a plaque after two

Indianapolis cousins (Rhonda Revere

Simmons and Pamela S. Hamler) appeared

on his show and gave information that led

authorities to charge them and four others

with welfare fraud and theft.

RIGA Joan Hobbs of the Pacific/

Hawaii Region spoke before a crowd of

about 150 certified public accountants at

their annual Western Region Real Estate

Conference held at Indian Wells, CA.

During the conference, Joan Hobbs

provided information on the mission of

HUD-OIG and the results of the many

audits performed in the area of singlefamily loan fraud.

Assistant Regional Inspector General

for Audit (ARIGA) Cris O’Rourke and

RIGA John Dvorak from Region 1

spoke at the Massachusetts Section 8

Administrators conference about the OIG

mission. The topics included, the Inspector

General Act, IG’s mission, what the IGs are

authorized to do, who oversees the IG,

HUD management and employee

responsibilities, organizational structure of

OIG, what the Office of Audit does, audit

plans and audit followup, and how OIG

focuses on HUD’s top management

challenges. Approximately 100 people

attended.

RIGA Ron Hosking served as a guest

speaker in the Performance Auditing class

at the University of Kansas in Lawrence,

KS. Performance Auditing is a graduate

level course designed to “introduce

students to performance auditing and to

explain the relevance of performance

auditing to broader issues in public

administration.” RIGA Hosking provided

the students with information about the

history and organization of the OIGs, how

OIG plans and conducts its audits, how it

issues and resolves its audit reports, and

how it evaluates and measures its

performance.

Outreach Efforts

Outreach Efforts 112
In Houston, TX, Senior Auditor

Angela Wilson of the Houston Office of

Audit spoke at the Public Housing

Authority Peer Group Meeting held on

January 19, 2004. Auditor Wilson gave a

presentation on OIG’s audit efforts to

counteract rental assistance overpayments.

The audience included more than 50

directors, staff members, and management

agents of Houston area public housing

authorities. Auditor Wilson shared

background information on OIG, why the

Inspector General is focusing its audit

efforts on the Section 8 program, and the

results of some completed housing

authority audits.

Region 5 ARIGA Thomas Towers gave

a presentation on February 24, 2005, to

Michigan Brokers/Agents in HUD’s

Detroit Field Office. The presentation

covered the mission and functions of both

OIG and the Office of Audit. There were

approximately 40 attendees who were

interested in buying and selling HUD

properties.

  

Outreach Efforts

Outreach Efforts 113

Chapter 8

Review of Policy Directives
R eviewing and making

 recommendations on

legislation, regulations, and policy issues is

a critical part of the Office of Inspector

General’s (OIG) responsibilities under the

Inspector General Act. During this

6-month reporting period, the OIG

reviewed 117 policy notices. This

chapter highlights some of the OIG

recommendations on these notices as well

as other policy directives.

Establishment of Amnesty Programs at

Establishment of Amnesty Programs at Establishment of Amnesty Programs at

Public Housing Agencies Resulting Public Housing Agencies Resulting

from Income and Rent Determinations from Income and Rent Determinations

The following information was

included in the September 30, 2004

Semiannual Report to Congress, and the

U.S. Department of Housing and Urban

Development (HUD) had not reached a

final decision on our comments. The draft

Public and Indian Housing 2004 Notice of

Funding Availability (NOFA) provides

requirements to housing agencies that plan

to offer tenants amnesty as a result of the

Upfront Income Verification System

detecting a difference between the tenants’

claims of income and the income reported

by their employers or agencies providing

income assistance. The Department

initiated the Upfront Income Verification

System to reduce subsidy errors caused by

tenants who are underreporting or not

reporting their income.

We did not concur with this draft

notice because it inappropriately

empowers housing agencies to decide who

will be prosecuted. Title 28, U.S.C.,

paragraph 516, states that the Attorney

General of the United States is responsible

for deciding who will be prosecuted for a

Federal offense. In the Tenth Amendment

to the United States Constitution, the

determination on who will be prosecuted

under State law is reserved to State

authorities.

OIG has investigated many cases

involving tenants who falsely reported their

incomes. These investigations resulted in

successful prosecutions or other remedial

actions. Currently, OIG has pending

investigations involving tenants who have

defrauded the Office of Public and Indian

Housing assistance programs. The draft

notice threatens to jeopardize current

investigations and to undermine the

fairness of past convictions.

The Office of Public and Indian

Housing has not issued the draft notice and

is reconsidering its provisions.

Proposed Rules Proposed Rules Proposed Rules

Followup on the Electronic Submission Followup on the Electronic Submission

of Applications for Grant and Other

of Applications for Grant and Other of Applications for Grant and Other

HUD Financial Assistance HUD Financial Assistance

The following information was

included in the September 30, 2004,

Semiannual Report to Congress, and HUD

had not reached a final decision on our

comments. HUD issued a proposed rule to

inform potential applicants for HUD

grants or other Federal financial assistance

about how to submit their applications to

HUD electronically. We did not concur

with this rule originally because we found

that the system was not being used to the

extent predicted and the proposed rule

failed to ensure that the internal

mechanisms at HUD could accommodate

the grants.gov data inflow. The Office of

Management and Budget (OMB) stated

that only 327 grants had been processed

since the system went online in March 2004

and it planned to receive 15,000 grant

Review of Policy Directives

Review of Policy Directives 116
applications in the first year. We found that

HUD had failed to test or record the

process of system-to-system interfaces to

ensure that data would flow directly into

HUD’s databases. Without the proper

interface, HUD would not be able to use

grants.gov in an efficient and effective

manner. HUD also did not obtain a risk

assessment from system owners to mitigate

control weaknesses. This program is one

of the 24 Federal cross-agency egovernment initiatives focused on

improving access to services via the

Internet. The vision for grants.gov is for it

to be a simple, unified source for

electronically applying for, funding, and

managing grant opportunities.

We now concur with the proposed

rule since HUD is working toward being

in full compliance with the OMB

requirements. In conjunction with HUD’s

release of this year’s “SuperNOFA,” a

notice that makes available $2.26 billion in

funding through an unprecedented 53

grant opportunities. HUD’s Secretary

announced that all applicants will be in

compliance with grants.gov. For fiscal year

(FY) 2005, electronic submission is

mandatory unless the applicant receives a

waiver from this regulatory requirement.

The only other exception is for those

applying for funding through HUD’s

Continuum of Care homeless assistance

programs. The departmental Grants

Management and Oversight Division has

observed initial favorable results based on

the limited number of calls by potential

applicants, compared to a year ago,

regarding the application process. HUD

attributes the upfront planning for the

smooth transition from paper application

to electronic.

Conversion of Developments from Conversion of Developments from

Public Stock: Methodology for Public Stock: Methodology for Public Stock: Methodology for

Comparing Costs of Public Housing Comparing Costs of Public Housing

and Tenant-Based Assistance and Tenant-Based Assistance

The following information was

included in the September 30, 2004

Semiannual Report to Congress and HUD

had not reached a final decision on our

comments. The United States Housing Act

of 1937, as amended, mandates that when

a development in the low-income program

costs more to operate than comparable

units in the Section 8 Housing Choice

Voucher (Voucher) program, the units in

the low-income program must be

converted to the Section 8 Voucher

program. To implement the statute, the

Office of Public and Indian Housing

circulated a draft rule on the conversion of

developments from the low-income

program: Methodology for Comparing

Costs of Public Housing and Tenant-Based

Assistance.

HUD’s appropriations act for the last

several years mandated that none of the

funds made available through the act may

be used until a risk assessment is conducted

and any risks identified are appropriately

mitigated. Further, departmental policy

provides that a rule may not be published

until the risk assessment has been

completed. We did not concur with the

issuance of the draft rule because the

Department has not conducted a risk

assessment on the conversion program as

required by the appropriations act and

HUD internal policy.

Section 9(g)(3) of the Quality Housing

and Work Responsibility Act limits the

number of units being replaced by the

housing agency to the number of units in

the housing agency inventory on October

Review of Policy Directives

Review of Policy Directives 117
1, 1999. We did not concur with the

proposed rule because HUD has not

published the number of units in each

housing agency inventory on October 1,

1999, as a control measure for preventing

housing agencies from constructing new

units exceeding the amount allowed.

The Department’s draft rule does not

preclude housing agencies from

constructing new units to replace units

converted from the low-income program

to the Section 8 Voucher program. Further,

we did not concur with this decision

because HUD’s draft rule did not mandate

that the housing agency ensure operating

costs for the newly constructed units do not

exceed those for comparable units in the

Section 8 Voucher program.

The Office of Public and Indian

Housing is currently revising the draft rule.

Public Housing Capital Fund Public Housing Capital Fund

This proposed rule governs public

housing agencies’ use of HUD-provided

funds for either the development of new

housing or the modernization of existing

housing, as well as activities to improve

existing management. The proposed rule

was circulated to implement the provision

in section 9 of the 1937 Housing Act, as

amended. HUD’s appropriations act in FY

2001 provided capital funds of $3 billion

and about $2.5 billion in FYs 2002 through

2004 or approximately $10.5 billion since

FY 2001.

HUD’s appropriation act in 2001 and

every act since then contain a general

provision mandating a risk assessment be

conducted before the regulation is

prepared. We did not concur with the

proposed rule because HUD had not

completed the required risk assessment.

The Housing Act of 1937, as amended,

allows housing agencies to develop units

using capital funds and also limits the

replacement units to the number of units

in the housing agency inventory on

October 1, 1999. HUD has not circulated a

report identifying the number of units in

inventory on October 1, 1999, for each

housing agency. We did not concur with

the proposed rule because HUD has not

published the number of units in each

housing agency inventory on October 1,

1999, as a control measure to insure the

housing agencies do not build more units

than allowed under the statute.

The Office of Public and Indian

Housing is considering OIG’s comments.

The proposed rule has not been published

as of the close of this semiannual reporting

period.

FR-4712-01 Disposition of HUDFR-4712-01 Disposition of HUD- FR-4712-01 Disposition of HUDAcquired Single Family Property-Good Acquired Single Family Property-Good

Neighbor Next Door

Neighbor Next Door Neighbor Next Door

The following information was

included in the September 30, 2004

Semiannual Report to Congress and HUD

had not reached a final decision on our

comments. HUD proposed a rule to

expand the eligibility of the Officer Next

Door and Teacher Next Door programs

(OND/TND) to tribal police officers,

firefighters, and emergency rescue workers

under a “Good Neighbor Next Door” title.

The program gives a first offer to purchase

advantage and typically a 50-percent price

discount to these potential buyers of HUD

single-family properties that are located in

urban revitalization areas.

We commented that the proposed

changes to the OND/TND program

appear to remain vulnerable to abuse and

Review of Policy Directives

Review of Policy Directives 118
may never achieve the stated purpose of

reducing neighborhood crime rates and

urban blight. OND/TND program abuses

were documented in a previous audit

report (Audit Report No. 2001-AT- 0001)

and individual guilty pleadings to criminal

convictions. As to achieving the program’s

purpose, a recent HUD study of OND/

TND in Rialto, CA, and Spokane, WA,

concluded that there must be a sufficient

concentration of OND/TND properties in

the revitalization zones to effectively reduce

crime rates. Many HUD properties sold

early in the program were not in the

targeted areas of greatest need and,

therefore, contributed little to the

program’s goals. While program changes

have corrected this problem, HUD has not

demonstrated that a sufficient number of

properties can be made available in the

targeted areas nationwide to effect

measurable neighborhood change. Timely

and sufficient property availability is a

systemic flaw in the program design not

easily corrected, and, consequently,

expanding eligibility to other special

occupations is not warranted.

The Department was reviewing our

comments at the end of the semiannual

reporting period.

Use of Housing Capital and Operating Use of Housing Capital and Operating

Funds for Financing Activities Funds for Financing Activities

OIG does not concur with the

proposed rule for the following reasons:

Public Law 108-199, section 411, as

well as HUD’s appropriations acts for the

last several years, mandated that none of

the funds made available through the act

may be used for any program, project, or

activity when it is known that the program,

project, or activity is not in compliance with

Federal laws relating to risk assessment.

The proposed rule is subject to this

provision because development activities

must obtain environmental reviews and the

statute for environmental reviews contains

the risk assessment provision. The

Department has not conducted a risk

assessment.

The Housing Act of 1937, as amended

in section 9(g)(3), allows housing agencies

to develop units using capital funds but

limits the development of new units to the

number of units in the housing agency

inventory on October 1, 1999. HUD has not

circulated a report identifying the number

of units in inventory on October 1, 1999,

for each housing agency, and HUD has not

established a control method to ensure the

housing agencies do not build more units

than allowed under the statute.

The Housing Act of 1937, as amended

in section 33 on the conversion of distressed

public housing to tenant-based assistance,

mandated that the low-income program

units that cost more to operate than

comparable units in the Section 8 Voucher

program must be converted to the Section

8 Voucher program. HUD’s proposed rule

does not provide controls to ensure

compliance by the housing agencies.

Nineteen projects were not subject to

existing controls because they were

approved by the Office of Policy, Programs,

and Legislative Initiatives before the

program was transferred to the Office of

Public Housing Investments. The Office of

Public Housing Investments established an

improved control structure for processing

applications; however, due to the existing

workload, the staff has not reevaluated the

projects approved by Office of Policy,

Programs, and Legislative Initiatives. OIG

is concerned about the ratio of workload

to staff capacity and the approval of

Review of Policy Directives

Review of Policy Directives 119
projects not subject to the improved control

measures.

The Public and Indian Housing

Information Center (PIC) system was

evaluated in connection with the internal

audit. The PIC system does not contain a

module for the bond program. OIG is

concerned that there is not an adequate

information system to control the workload

flow and facilitate monitoring.

The proposed rule states that OMB

determined this rule is a “significant

regulatory action.” OMB issued new

guidelines for regulatory analysis in

Circular A-4, effective January 1, 2005. The

proposed rule contains the statement of

proposed need required by OMB Circular

A-4; however, it does not contain an

examination of alternative approaches, an

evaluation of the benefits and costs–

quantitative and qualitative–of the

proposed action, and the main alternatives

as mandated by OMB Circular A-4.

The proposed rule discusses pledging

funds from the capital fund. The Housing

Act of 1937, as amended, provides in

section 30 that the Secretary may authorize

a public housing agency to mortgage or

otherwise grant a security interest in any

public housing project or other property of

the public housing agency. It is OIG’s

understanding that pledging is associated

exclusively with capital assets because to

complete the pledging transaction, the

investor must perfect the security

instrument by having the local

governmental entity publicly record on the

face of the asset ownership document that

the asset is pledged and this process can

only be accomplished with a physical asset.

Future funding can be encumbered, as

opposed to pledging, through various

financial instruments. We did not concur

with the proposed rule because it exceeds

the authority provided to HUD in the

statute by authorizing the pledging of

funds.

Our nonconcurrence with the

proposed rule is under review by the

Department.

Mortgagee Letters Mortgagee Letters Mortgagee Letters

Premium Pricing on FHA-Insured Premium Pricing on FHA-Insured

Mortgages Mortgages

HUD drafted a mortgagee letter

to allow premium pricing of Federal

Housing Administration (FHA)-insured

mortgages to fund the homebuyer’s

required 3-percent cash investment or

downpayment. Premium pricing may be

used currently to pay the homebuyer’s

closing costs and prepaid expenses. HUD

believes that premium pricing will help

cash-short but otherwise credit-worthy

borrowers buy their first homes.

We nonconcurred because the

proposed mortgagee letter places no

obligation on the lender to use premium

pricing for the borrower’s benefit. Based on

recent mortgagee audits, premium pricing

was not producing the intended benefit.

Instead of helping FHA homebuyers pay

closing costs, lenders used the monies from

premium pricing to compensate the loan

officers or earn higher profits.

Our nonconcurrence with the

proposed rule is under review by the

Department.

Streamline (k) Limited Repair Program Streamline (k) Limited Repair Program

HUD drafted a mortgagee letter to

reduce documentation and control

requirements governing the 203(k)

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Review of Policy Directives 120
Rehabilitation Home Mortgage Insurance

program, an acknowledged higher risk

FHA insurance program. The Streamline

(k) allows special treatment of purchased

properties that qualify for eligible repairs

between $5,000 and $15,000. Under the

standard 203(k) program, lenders and

borrowers rely primarily on consultants to

ensure contractor work quality and timely

completion. However, the Streamline (k)

eliminates the consultant. Borrowers must

develop a work plan, estimate costs,

identify the vendor or contractor, and

inspect the work.

We commented that relaxing controls

could expose first-time purchasers with

no or limited experience in home

improvement projects to unreliable

contractors and unsatisfactory

workmanship. We also questioned as

excessive a proposed $500 supplemental

loan origination fee to be paid by the

borrower.

Our comments on the proposed rule

are under review by the Department.

  

Review of Policy Directives

Review of Policy Directives 121

Chapter 9

Audit Resolution
Audit Resolution

Audit Resolution 124

I n the audit resolution process,

 Office of Inspector General

(OIG) and U.S. Department of Housing

and Urban Development (HUD)

management agree upon the needed

actions and timeframes for resolving audit

recommendations. Through this process,

we hope to achieve measurable

improvements in HUD programs and

operations. The overall responsibility for

assuring that the agreed-upon changes are

implemented rests with HUD managers.

This chapter describes significant pending

issues on which resolution action has been

delayed. It also contains a status report on

HUD’s implementation of the Federal

Financial Management Improvement Act

of 1996.

We are proud to note that for the

eighth consecutive semiannual period,

there are no outstanding management

decisions on audit recommendations over

6 months old to be reported to Congress.

In addition to this chapter on audit

resolution, see appendix 2, table A, “Audit

Reports Issued Before Start of Period with

No Management Decision at March 31,

2005,” and table B, “Significant Audit

Reports Described in Previous Semiannual

Reports in Which Final Action Had Not

Been Completed as of March 31, 2005.”

Delayed Actions Delayed Actions Delayed Actions

Audits of HUD’s FY 1991 through s FY 1991 through

2004 Financial Statements 2004 Financial Statements

First Issued June 30, 1992. HUD has

been preparing consolidated financial

statements under the requirements of the

Chief Financial Officers Act for 14 years,

beginning with fiscal year (FY) 1991.

Various internal control weaknesses have

been reported in these audits.

As a result of the FY 2004 financial

audit process, we reported HUD’s need to

comply with Federal Financial

Management System requirements,

including the need to enhance the Federal

Housing Administration’s (FHA)

information technology systems to more

effectively support FHA’s business and

budget processes and improve FHA’s

management review of the credit reform

estimation process. While there has been

progress, material weaknesses continue

with respect to the need to (1) complete

improvements to financial systems and (2)

improve oversight and monitoring of

subsidy calculations and intermediaries’

program performance. Corrective action

plans to resolve these issues have continued

to change, with final action targeted by the

end of calendar year 2006.

Audits of FHA Audits of FHA’s FY 1991 through s FY 1991 through

2004 Financial Statements 2004 Financial Statements

First Issued March 27, 1992. FHA has

prepared financial statements for 14 years

under the Chief Financial Officers Act,

beginning with FY 1991. The audit of

FHA’s FY 2004 financial statements

discussed FHA’s need to improve its review

of the credit reform estimation process as

a material weakness. The finding revealed

that FHA management did not adequately

review the underlying data supporting the

assumptions in the estimation cash flow or

functionality models. This resulted in

material errors in the FHA mark to market

loan loss reserve and the liability for loan

guarantee claim projections and

calculations. The audit continues to

recognize that FHA needs to (1) improve

its information technology (primarily

accounting and financial management

systems) to more effectively support FHA’s

business and budget processes and (2)

continue to improve early warning and loss
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Audit Resolution 125

prevention for single-family insured

mortgages through more emphasis on

monitoring lender underwriting and more

effective use of loan portfolio risk

assessment tools. A weakness reported

since the FY 1992 financial statement audit

relates to the need for FHA to more

effectively manage controls over its

information systems’ general and

application level security controls. FHA’s

latest action plan continues to report

progress toward resolving these remaining

long-standing issues, with final actions

targeted over the next 1 to 3 years.

Significant Revised Significant Revised

Management Decisions Management Decisions Management Decisions

Section 5(a)(11) of the Inspector

General Act, as amended, requires that

OIG report information concerning the

reasons for any significant revised

management decisions made during the

reporting period. During the current

reporting period, there were significant

revised management decisions on four

audits.

Housing Authority of the City of

Housing Authority of the City of Housing Authority of the City of

Miami Beach, Section 8 and Public Miami Beach, Section 8 and Public

Housing Programs Housing Programs

Issued October 20, 2000. Due to

inadequate planning and management of

human and financial resources, the

Housing Authority of the City of Miami

Beach (HACMB) wasted more than $2

million in a failed effort to provide housing

and social services. The HACMB had not

broken ground or developed final plans to

fund, construct, and operate a women and

children’s housing and resource center. The

center had been delayed for more than 5

years, and the HACMB had lost or was at

risk of losing almost all of the $5.8 million

originally committed to fund the project.

Further, the City was considering a road

construction project that may have

prevented the HACMB from constructing

the center on the planned site or recovering

its full investment in the site. The HACMB’s

failure to complete the project deprived the

City’s low-income community of needed

housing and social services.

The audit recommended that the

HACMB immediately complete the

planned sale of the existing site for its fair

market value and use the proceeds to

reimburse the Section 8 and bond

construction funds in proportion to the

share of costs paid from each fund. In

February 2001, the Office of Housing agreed

to require the HACMB to obtain an

appraisal of the site that is acceptable to

HUD and to provide a copy of the recorded

deed conveying the site to a bona fide

purchaser for the full value. The HACMB

was also to provide a copy of the closing

statement, showing the sale price and

support for distribution of the proceeds to

the Section 8 and bond construction funds.

At that time, HUD expected that the sale

of the site would occur by February 2002,

with full implementation of solutions by

March 2002.

In January 2005, following several

target completion date extensions, HUD

requested a revised management decision.

HUD believes that, under the current

administration, the HACMB will be

successful with its development plans.

Therefore, HUD officials recommended a

revised management decision to no longer

require the sale of the site (appraised at

more than $2 million). HUD, however, will

require the HACMB to use a portion of the

development loan to reimburse the Section

8 program for the $980,000 used to
purchase the land. A nonprofit arm of the

HACMB will be established to develop the

site, and the site will remain under the

ownership of the HACMB. OIG agreed

with the revised management decision,

and final action was taken on March 31,

2005. (Report No. 2001-AT-1001)

Wood Hollow Place Apartments, Wood Hollow Place Apartments, Wood Hollow Place Apartments,

Texas City, TX Texas City, TX

Issued November 18, 2002. Our audit

memorandum found the management

agent of Wood Hollow Apartments, Texas

City, TX, had improperly paid advances,

loans, and other fees totaling more than

$220,000. The improper payments

occurred because the project experienced

cash flow problems and the management

agent did not follow the regulatory

agreement and other HUD regulations. The

improper payments weakened the project’s

financial condition and put the project at

the risk of default.

The audit recommended that HUD

require the management agent to cease

making improper distributions and repay

the ineligible and unsupported amounts.

In December 2002, HUD multifamily

housing officials agreed that the

management agent should repay the

ineligible and unsupported funds and

began action to seek civil recovery of the

funds. In August 2004, HUD informed OIG

that recovery of the funds was not possible

and civil and criminal avenues for recovery

had been exhausted. However, to protect

its interests, HUD foreclosed on the

property and took actions to sanction

responsible parties. In October 2004, HUD

notified OIG that the note had been sold

on September 15, 2004, for $1,005,578. On

January 6, 2005, HUD revised the

management decision and corrective

actions to allow the alternative actions

taken to satisfy the recommendations. OIG

agreed with the revised management

decision. While OIG did not obtain recovery

of the $220,000 identified as ineligible and

unsupported, we recorded the $1,005,578

in sale proceeds as funds to be put to better

use. (Report No. 2003-FW-1801)

Section 8 Housing Program,

Section 8 Housing Program, Section 8 Housing Program,

Kankakee County Housing Program Kankakee County Housing Program

Issued November 26, 2003. An audit of

the Kankakee County Housing Authority’s

(Authority) Section 8 housing program

found that the Authority’s management

controls over its program were very weak.

The Authority lacked adequate procedures

and controls over housing quality

standards and administrative processes.

The Authority’s Section 8 units contained

health and safety violations. We found a

total of 873 housing quality standards

violations in 47 of the 50 units inspected.

The Authority failed to properly enforce its

ordinance governing the licensing of

housing units occupied by persons other

than the owners. Further, the Authority did

not maintain adequate controls over its use

of Section 8 funds. We recommended that

HUD’s Acting Director, Recovery and

Prevention Corps, Cleveland Field Office,

assure that the Authority implements

procedures and controls to correct the

weaknesses cited in this report.

Additionally, we recommended that the

Acting Director (1) take administrative

actions against the Authority’s former

Executive Directors and its Board of

Commissioners for failing to administer the

Authority according to Federal, City of

Kankakee, and its own requirements; (2)

provide training and technical assistance

to the Authority’s staff and its Board of

Commissioners regarding their duties and

responsibilities; and (3) issue a notice of

default to the Authority as permitted by

section 15 of the consolidated annual

contributions contract. OIG believed that

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Audit Resolution 126
HUD’s default notice would help ensure

that the Authority used its $2.2 million in

Section 8 program funds appropriately.

In March 2004, HUD’s Acting

Director, Recovery and Prevention Corps,

agreed to implement the following

corrective actions:

 Issue a notice of substantial default

of the Authority’s consolidated

annual contributions contract.

 Require the Authority to contract

out administration of its Section

8 program to an alternate

management entity for a period of

2 years.

At that time, HUD expected that the

Authority would be able to obtain an

alternate management entity. However,

after two unsuccessful attempts, the

Authority was unable to find an entity to

administer its program.

In January 2005, HUD revised the

management decision and corrective

actions, and we agreed to the revisions.

HUD will not issue a notice of substantial

default and will allow the Authority to

continue to administer its program for 1

year. HUD agreed to evaluate the

Authority’s program by December 31,

2005, to determine whether the Authority

should continue to administer its program.

(Report No. 2004-CH-1001)

Citizen Citizen’s Complaint Upfront Grant and s Complaint Upfront Grant and

HOME Loan Spanish Village Community HOME Loan Spanish Village Community

Development Corporation, Houston, Development Corporation, Houston, Development Corporation, Houston,

TX

Issued April 28, 2003. In response to a

citizen’s complaint, our audit of the upfront

grant and HOME loan provided to the

Spanish Village Community Development

Corporation (SVCDC), Houston, TX, found

that SVCDC had not completed HUDfunded renovations on the Spanish Village

Apartments in more than 4 years after it

was required to by agreements between

HUD and SVCDC. The upfront grant

agreement, sales contract, and special

warranty deed required SVCDC to

complete the renovations by September

1998. Due to the lack of administrative

capacity to carry out the requirements,

SVCDC only completed the first phase of

the renovations, and these renovations did

not meet HUD standards. As a result,

residents of the property continued to live

in substandard conditions. On March 12,

2003, the Fort Worth HUD office declared

a default under the upfront grant

agreement and gave SVCDC the option to

either (1) sell the property to a nonprofit

entity with the capacity and experience to

complete the rehabilitation and assign the

remaining grant funds to that entity within

60 days or (2) deed the property back to

HUD as required by the special warrant

deed.

The audit recommended that the

Director of Multifamily Housing Property

Disposition continue with the remedial

action he started by establishing an

acceptable plan of action if SVCDC did not

comply with HUD’s options as stated in

the default letter of March 12, 2003.

On August 27, 2003, the Director,

Multifamily Housing Division, stated that

he had referred the matter to the Regional

Office of General Counsel (OGC) to

attempt to acquire title to the property

through the courts. If the SVCDC could

transfer the property to a new ownership

entity acceptable to HUD before the matter

was referred to the Department of Justice

for affirmative litigation, he would cancel

his request and allow assignment of the

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Audit Resolution 127
remaining upfront grant funds to the new

entity to rehabilitate the property. He said

the Regional OGC would make a litigation

referral to Headquarters OGC by December

31, 2003, and OGC would review the

referral, consult with the Assistant

Secretary for Housing, and decide by

March 31, 2004, as to whether the matter

would be referred to the Department of

Justice for litigation.

On February 7, 2005, the Director,

Multifamily Housing Division, revised the

management decision and deobligated the

remaining grant funds of almost $1.5

million. He said the project will continue

to provide affordable housing, but the

Department does not wish to pursue legal

action to reacquire the project because of

the potential increased cost burden to the

Government. Also, the legal action would

impede future repairs to the complex and

probably result in more deterioration.

Therefore, HUD requested this finding be

closed. We agreed with the revised

management decision. Despite numerous

attempts, neither the SVCDC nor any of

the proposed owners provided

documentation to support the assignment

of the upfront grant funds. (Report No.

2003-FW-1004)

Significant Management Significant Management Significant Management

Decision with Which OIG Decision with Which OIG

Disagrees Disagrees Disagrees

Section 5(a)(12) of the Inspector

General Act, as amended, requires that

OIG report information concerning any

significant management decision with

which it is in disagreement. During the

current reporting period, there was one

significant management decision with

which we disagreed.

United States Veterans Initiative,

United States Veterans Initiative, United States Veterans Initiative,

Inc. - Supportive Housing Program Inc. - Supportive Housing Program

Grantee Grantee

Issued September 27, 2004. U.S.

Veterans Initiative, Inc., a Supportive

Housing Program grantee based in

Inglewood, CA, did not meet cashmatching fund requirements for $7.2

million in Supportive Housing Program

funds expended. Our recommendations for

addressing the deficiencies included

requiring U.S. Veterans Initiative and/or

its continuums, the Los Angeles Homeless

Services Authority (LAHSA) and the City

of Long Beach, to repay HUD from

nonfederal funds for the Supportive

Housing Program grant expenditures that

did not have the required matching funds.

In an effort to reach a management

decision on this report, we agreed that the

Office of Community Planning and

Development (CPD) could seek guidance

and clarification from other Federal

agencies involved, HUD’s OGC, and the

Office of Management and Budget (OMB).

The issues revolve around (1) a

determination of what constitutes

matching funds under the Supportive

Housing Program; (2) what level of support

is needed from the grantee, and whether

failure to meet matching requirements

invokes the Debt Collection Act; and (3)

what action HUD will take if it is

determined that the grantee has not

fulfilled the requirements of the grant

agreement. We worked with CPD and

agreed that it could seek clarification from

other Federal agencies that are supplying

matching funds as to whether their funds

can be used as the match. Further, we

agreed that CPD would seek guidance

from HUD-OGC on questions relating to

what constitutes matching funds under the

Supportive Housing Program and defining

Audit Resolution

Audit Resolution 128
what level of support is required by the

grantee.

OIG and CPD could not agree as to

whether OMB is the appropriate agency

to determine whether a failure to comply

with the matching requirements constitutes

a Federal debt. A precondition to the

application of the Debt Collection Act is

the existence of a “debt” or “claim,” which

for purposes of the Debt Collection Act,

...means any amount of funds or

property that has been determined by

an appropriate official of the Federal

Government to be owed to the United

States by a person, organization, or

entity other than another Federal

agency. A claim includes, without

limitation...the unpaid share of any

non-Federal partner in a program

involving a Federal payment and a

matching, or cost-sharing, payment by

the non-Federal partner.... [31 U.S.C.

§ 3701(b)(1)(E)]

Thus, pertinent to this matter, a

“debt” or a “claim” has two aspects: (1)

a determination by a Federal official with

appropriate jurisdiction, and (2) that

there is an unpaid share of a matching

or cost-sharing obligation by a nonfederal

entity.

If the Debt Collection Act is

applicable, then two main obligations

control Federal agency action, as follows:

The head of an executive, judicial, or

legislative agency—

 shall try to collect a claim of the

United States Government for

money or property arising out of the

activities of, or referred to, the

agency; [31 U.S.C. § 3711(a)(1)]

 may compromise a claim of the Government of not more than $100,000

(excluding interest) or such higher

amount as the Attorney General

may from time to time prescribe that

has not been referred to another

executive or legislative agency for

further collection action, except that

only the Comptroller General may

compromise a claim arising out of

an exception the Comptroller General makes in the account of an accountable official.... [31 U.S.C. §

3711(a)(2)]

Regarding the latter authority to

compromise “debts” and “claims” in

excess of $100,000, the Debt Collection

Act is not explicit, but—with respect to

HUD debts—it appears to reserve that

authority to OMB. [see 31 U.S.C. §

3702(a)(4)].

OIG believed that either CPD must

seek guidance from OMB or HUD-OGC

must coordinate with OMB on this

matter. If OMB or HUD-OGC with

OMB’s concurrence determines the

failure to provide the excess match is a debt,

then, pursuant to statute, CPD should

attempt to collect the debt and defer to

OMB’s instructions if the debt exceeds

$100,000. CPD did not agree to seek

guidance from or to coordinate the issue with

OMB.

On March 30, 2005, OIG referred the

disagreement to the Deputy Secretary. On

April 4, 2005, the Deputy Secretary made a

final decision on the actions for which an

agreement could not be made. The Deputy

Secretary concluded that the failure to

provide a budgeted match over the statutory

requirement is not a debt to HUD under 31

U.S.C. § 3701(b)(1).

Audit Resolution

Audit Resolution 129
We disagree with this determination and

stand by our conclusion that HUD should

seek guidance from OMB to determine

whether the matching funds are subject to

provisions of the Debt Collection Act. (Report

No. 2004-LA-1008).

Federal Financial Management Federal Financial Management Federal Financial Management

Improvement Act of 1996 Improvement Act of 1996

The Federal Management Improvement

Act of 1996 (FFMIA) requires that HUD

implement a remediation plan that will bring

financial systems into compliance with

Federal Financial Management System

requirements within 3 years or obtain OMB

concurrence if more time is needed. FFMIA

requires us to report in our semiannual

reports to the Congress instances and reasons

when an agency has not met the intermediate

target dates established in its mediation plan

required by FFMIA. In April 1998, HUD

determined that 38 of its systems were not in

substantial compliance with FFMIA. At the

end of FY 2004, the Department continued

to report that 4 of its 46 financial

management systems were not in substantial

compliance with FFMIA. Our supplemental

report regarding HUD’s FY 2004 financial

statements cites additional financial

management system weaknesses, addressing

how HUD’s financial management systems

remain substantially noncompliant with

Federal financial management requirements.

We also cited weaknesses regarding HUD/

FHA’s limited ability to effectively monitor

budget execution related to certain funds

control processes. With the implementation

of the FHA Subsidiary System, the

Department became substantially compliant

with the FFMIA Standard General Ledger

provision. The FHA Subsidiary General

Ledger Project is a multiphase project to be

completed by FY 2007.

  

Audit Resolution

Audit Resolution 130
Appendix 1

Audit Reports Issued
Internal Reports Internal Reports Internal Reports

10 Audit Reports 10 Audit Reports

Administration (2 Reports)

2005-DP-0001 Fiscal Year 2004 Review of Information Systems Controls in

Support of the Financial Statements Audit, 10/19/2004.

2005-DP-0003 Control Over HUD’s Purchase Card Program Needs Improvement

To Ensure Documentation and Monitoring Requirements are Met,

02/02/2005.

Chief Financial Officer (3 Reports)

2005-DP-0002 Control Over HUD’s Travel Card Program Needs Improvement,

12/01/2004.

2005-DP-0004 HUD’s Compliance with Joint Financial Management

Improvement Program Core Financial System Management and

General Ledger Management Requirements, 03/04/2005.

2005-FO-0003 Additional Details to Supplement Our Report on HUD’s Fiscal

Year 2004 Financial Statements, 11/15/2004. Better Use:

$708,000,000.

Federal Housing Oversight (1 Report)

2005-KC-0001 The Office of Federal Housing Oversight is Comparable to Other

Federal Financial Regulators in Its Allocation of Resources and

Staffing, 03/16/2005.

Government National MortgageAssociation (1 Report)

2005-FO-0001 Audit of the Government National Mortgage Associations Fiscal

Year 2004 Financial Statements, 11/12/2004.

Housing (2 Reports)

2005-FO-0002 Audit of the Federal Housing Administration’s Financial

Statements for Fiscal Year 2003-2004, 11/15/2004.

2005-PH-0001 Criteria Governing Local Government Participation in HUD’s

Single Family Property Disposition Discount Sales Program,

03/29/2005.

Public and Indian Housing (1 Report)

2005-FW-0001 Housing Authority Employee Pension Plan Forfeiture, Public and

Indian Housing, 10/08/2004. Better Use: $5,300,000.

Audit-Related Memorandums* Audit-Related Memorandums*

Chief Financial Officer (1 Report)

2005-DP-0801 Annual Evaluation of HUD’s Information Security Program,

10/01/2004

* The memorandum format is used to communicate the results of reviews not performed in accordance

with generally accepted government auditing standards, to close out assignments with no findings and

recommendations, to respond to requests for information, to report on the results of a survey, to report

results, or to report the results of civil actions or settlements.

Audit Reports Issued

Audit Reports Issued 132
External Reports External Reports External Reports

48 Audit Reports 48 Audit Reports

Community Planning and Development (4 Reports)

2005-CH-1008 City of Decatur, IL, Neighborhood Renewal Program, 03/30/2005.

2005-FW-1001 City of New Orleans, LA, Section 108 Program, Louisiana ArtWorks,

11/05/2004. Questioned: $22,382; Unsupported: $17,723.

2005-FW-1005 The New Orleans African-American Museum, New Orleans, LA,

02/25/2005. Questioned: $1,073,044; Unsupported: $298,434;

Better Use: $859,684.

2005-NY-1003 Lower Manhattan Development Corporation, Community

Development Block Grant Disaster Assistance Funds, New York, NY,

03/23/2005. Questioned: $141,347.

Housing (24 Reports)

2005-AT-1003 American Mortgage Express Corporation d.b.a. American

Residential Mortgage Corporation, Mt Laurel, NJ, 11/18/2004.

Questioned: $103,794; Better Use: $307,544.

2005-AT-1005 Pan American Financial Corporation, Nonsupervised Direct

Endorsement Lender, Guaynabo, PR, 01/27/2005. Questioned:

$209,889; Better Use: $1,391,208.

2005-AT-1007 Interstate Financial Mortgage Group Corporation, Nonsupervised

Direct Endorsement Lender, Miami, FL, 03/15/2005. Questioned:

$147,817; Better Use: $1,057,905.

2005-AT-1008 Trust America Mortgage, Inc., Nonsupervised Direct Endorsement

Lender, Cape Coral, FL, 03/25/2005. Questioned: $130,504; Better

Use: $977,709.

2005-CH-1001 Prestige Mortgage Group, Inc., Nonsupervised Loan Correspondent,

Springfield, OH, 10/27/2004. Questioned: $13,543; Unsupported:

$13,543; Better Use: $1,890,739.

2005-CH-1002 Washington Mutual Bank, Underwriting of Federal Housing

Administration-Insured Loans, Downers Grove, IL, 11/29/2004.

Questioned: $456,164; Unsupported: $393,801.

2005-CH-1004 Lakewood Care Center, Multifamily Equity Skimming, Milwaukee,

WI, 12/22/2004. Questioned: $1,021,056.

2005-CH-1005 Wood Hills Assisted Living Facility, Multifamily Equity Skimming,

Kalamazoo, MI, 01/12/2005. Questioned: $518,633.

2005-CH-1006 Flagstar Bank FSB, Supervised Direct Endorsement Lender, Troy,

MI, 03/07/2005. Better Use: $251,103.

2005-CH-1007 RBC Mortgage Company, Nonsupervised Mortgagee, Houston,

TX, 03/29/2005. Questioned: $50,576; Unsupported: $24,510;

Better Use: $16,282,212.

2005-DE-1001 First Source Financial USA, HUD Approved Nonsupervised Loan

Correspondent, Midvale, UT, 10/13/2004. Questioned: $410,188;

Better Use: $2,205,329.

Audit Reports Issued

Audit Reports Issued 133
2005-FW-1002 Domicile Property Management, Inc., Multifamily Management

Agent, San Antonio, TX, 11/19/2004. Questioned: $2,290,291;

Unsupported: $1,469,926; Better Use: $352,053.

2005-FW-1003 Heartland Health Care Center of Bethany, OK, 12/10/2004.

Questioned: $18,728,748; Unsupported: $16,418,588.

2005-FW-1004 American Property Financial, Nonsupervised Loan Correspondent,

San Antonio, TX, 01/28/2005. Questioned: $175,970; Unsupported:

$10,812; Better Use: $3,300,991.

2005-KC-1001 Karim Enterprises, DBA Prime Mortgage, St. Charles, MO,

10/04/2004. Better Use: $376,102.

2005-KC-1003 Leader Mortgage Company, Lenexa, KS, 01/25/2005. Questioned:

$3,896; Better Use: $911,738.

2005-LA-1803 Wachovia Mortgage Corporation, Direct Endorsement Mortgagee,

Scottsdale, AZ, 11/22/2004. Questioned: $150,264; Unsupported:

$112,092; Better Use: $2,331,795.

2005-NY-1002 First United Mortgage Company, Inc., Nonsupervised Mortgagee,

Cranford, NJ, 12/28/2004. Questioned: $6,277; Unsupported:

$2,504; Better Use: $2,482,438.

2005-PH-1003 The Town of Clifton, VA’s Participation in the Single Family

Property Disposition Discount Sales Program, 12/21/2004.

Questioned: $355,470; Unsupported: $242,965.

2005-PH-1005 Fleet National Bank, Mortgagee Review, Philadelphia, PA,

01/20/2005. Better Use: $659,049.

2005-PH-1006 Mortgagee Review of the Peoples National Bank Branch Office,

Towson, MD, 02/16/2005. Better Use: $2,369,959.

2005-SE-1002 National City Mortgage, Federal Way, WA, Branch, 12/16/2004.

Questioned: $5,506; Better Use: $235,660.

2005-SE-1003 Oregon Housing and Community Services, Salem, OR, 02/09/2005.

Questioned: $3,375,047; Unsupported: $1,982,052; Better Use:

$286,318.

2005-SE-1004 Wells Fargo Bank, NA, Fife, WA, Branch, Supervised Mortgagee

Loan Underwriting, 03/24/2005. Questioned: $667,181;

Unsupported: $600,726; Better Use: $882,319.

Public and Indian Housing (20 Reports)

2005-AT-1001 The Housing Authority of the City of Carrollton, GA, 11/01/2004.

Questioned: $1,242,264; Unsupported: $1,183,839; Better Use:

$1,489,819.

2005-AT-1002 The Housing Authority of the City of Charleston, SC, 11/15/2004.

Questioned: $15,637,414; Unsupported: $15,637,414; Better Use:

$400,000.

2005-AT-1004 The Housing Authority of the City of Durham, NC, 11/19/2004.

Questioned: $7,808,748; Unsupported: $953,477; Better Use:

$8,287,142.

Audit Reports Issued

Audit Reports Issued 134
Audit Reports Issued

Audit Reports Issued 135

2005-AT-1006 The Jefferson County Housing Authority, Birmingham, AL,

02/24/2005. Questioned: $3,757,802; Unsupported: $3,361,785;

Better Use: $771,076.

2005-BO-1001 Waterbury, CT, Housing Authority, Audit of Selected Programs,

10/13/2004. Questioned: $1,526,890; Unsupported: $850,049;

Better Use: $2,512,565.

2005-CH-1003 Royal Oak Township Housing Commission, Public Housing

Program, Ferndale, MI, 11/29/2004. Questioned: $416,076; Better

Use: $435,372.

2005-DE-1002 Boulder County Housing Authority, Boulder, CO, 03/09/2005.

Questioned: $556,923; Unsupported: $123,784.

2005-FW-1006 Housing Authority of the City of Houston’s Contractor, Houston,

TX, 03/25/2005. Questioned: $1,154,142; Unsupported:

$1,140,915; Better Use: $1,180,720.

2005-FW-1007 Housing Authority of the City of Houston’s Contractor, Houston,

TX, 03/29/2005. Better Use: $26,132,380.

2005-KC-1002 The Housing Authority of St. Louis County, St. Louis, MO,

11/15/2004.

2005-LA-1001 The Housing Authority of the County of San Joaquin, Stockton, CA,

11/18/2004. Questioned: $518,559; Unsupported: $4,201; Better

Use: $2,980,328.

2005-LA-1002 The Housing Authority of Maricopa County, Mixed-Finance

Development Activities, Phoenix, AZ, 03/14/2005. Questioned:

$7,723,035; Unsupported: $6,470,775.

2005-LA-1805 The Housing Authority of the City of Los Angeles, CA, Resident

Management Corporations/Resident Advisory Councils,

01/21/2005. Questioned: $1,785,450; Unsupported: $894,592.

2005-NY-1001 Glens Falls, NY, Housing Authority, Low-Rent Public Housing and

Section 8 Housing Choice Voucher Programs, 11/10/2004.

Questioned: $384,085; Unsupported: $384,085; Better Use: $745,352.

2005-PH-1001 Lehigh County Housing Authority, Emmaus, PA, 10/15/2004.

Questioned: $93,834; Better Use: $3,079,345.

2005-PH-1002 The Huntington, WV, Housing Authority, 12/02/2004. Questioned:

$320,524; Better Use: $46,371.

2005-PH-1004 Corrective Action Verification Review of the Housing Authority of

Baltimore City, MD, Section 8 Certificate and Voucher Programs,

Audit Report Number 2001-PH-1003, 12/21/2004. Questioned:

$70,430; Better Use: $30,610,264.

2005-PH-1007 Lehigh County Housing Authority, Emmaus, PA, 03/09/2005.

Questioned: $4,755,323; Unsupported: $4,028,698; Better Use:

$1,585,107.

2005-PH-1008 The Housing Authority of the City of Pittsburgh, PA, Moving to

Work Demonstration Program, 03/24/2005. Better Use: 102,600,000.
Audit Reports Issued

Audit Reports Issued 136

2005-SE-1001 Tulalip Tribes Housing Authority, Marysville, WA, 10/21/2004.

Questioned: $5,178,314; Unsupported: $5,178,314.

Audit-Related Memorandums* Audit-Related Memorandums*

General Counsel (1 Report)

2005-CH-1802 Program Fraud Civil Remedies Act, AIM Financial, Inc., Kentwood,

MI, 03/31/2005. Questioned: $35,000.

Housing (6 Reports)

2005-BO-1002 Massachusetts Housing Finance Agency, Multifamily Property

Demonstration Disposition Program, Boston, MA, 01/19/2005.

2005-CH-1801 RVA Properties Inc., Multifamily Equity Skimming, Farmington

Hills, MI, 12/22/2004. Questioned: $271,940; Unsupported:

$248,701.

2005-FW-1801 Highland Meadows Apartments, FHA 112-11106, Dallas, TX,

11/02/2004. Questioned: $124,426.

2005-LA-1801 The Carmichael, CA, Rehabilitation Center, Federal Housing

Administration Project Number 136-43061, 11/04/2004.

Questioned: $4,093,215.

2005-LA-1804 Canoga Care Center, Canoga Park, CA, 01/03/2005. Better Use:

$3,321,917.

2005-NY-1802 Arlington Arms, Multifamily Project No. 031-35237, Jersey City,

NJ, 01/21/2005. Questioned: $11,799.

Public and Indian Housing (2 Reports)

2005-LA-1802 The Housing Authority of the City of Los Angeles, CA, Nonprofit

Organizations, 11/05/2004.

2005-NY-1801 City of Niagra Falls, NY, Section 8 Housing Choice Voucher

Program, 12/14/2004.

* The memorandum format is used to communicate the results of reviews not performed in accordance

with generally accepted government auditing standards, to close out assignments with no findings and

recommendations, to respond to requests for information, to report on the results of a survey, to report

results, or to report the results of civil actions or settlements.

  
Appendix 2

Tables
Table A Table A

Audit Reports Issued Prior to Start of Period with No Audit Reports Issued Prior to Start of Period with No

Management Decision at 03/31/2005 Management Decision at 03/31/2005

* Significant Audit Reports Described in Previous Semiannual Reports

Report Number & Title Reason for Lack of Issue Date/Target

 Management Decision for Management

Decision

Nothing to Report

Tables

Tables 138
Table B

Significant Audit Reports Described in Previous Semiannual Reports Where Final Significant Audit Reports Described in Previous Semiannual Reports Where Final Significant Audit Reports Described in Previous Semiannual Reports Where Final

Action Had Not Been Completed as of 03/31/2005 Action Had Not Been Completed as of 03/31/2005

Report Report Title Issue Decision Final

Number Date Date Action

1997-CH-1010 Major Mortgage Corporation, 09/17/1997 01/06/1998 06/01/2005

Section 203(K) Rehabilitation

Home Mortgage Insurance

Program, Livonia, MI

1999-FO-0003 HUD Fiscal Year 1998 Financial 03/29/1999 09/30/1999 Note 1

Statements

2000-FO-0002 Federal Housing Administration, 02/29/2000 08/09/2000 12/31/2005

Audit of FY 1999 Financial

Statements

2000-FO-0003 Attempt to Audit the FY 1999 03/01/2000 09/29/2000 Note 1

Financial Statements, HUD

2000-KC-0002 Housing Subsidy Payments 09/29/2000 02/21/2001 09/30/2005

2001-SF-1802 Audit of HUD Earthquake Loan 02/08/2001 06/14/2001 Note 1

Program (HELP) Funds,

Woodland Hills, CA

2001-FO-0002 Federal Housing Administration, 03/01/2001 07/24/2001 12/21/2006

Audit of Fiscal Year 2000

Financial Statements

2001-FO-0003 Audit of HUD Fiscal Year 2000 03/01/2001 07/18/2001 Note 2

Financial Statements

2001-SF-1803 Supportive Housing Program 03/23/2001 07/24/2001 Note 1

Grant, Los Angeles, CA

2001-CH-1007 Detroit, MI, Housing 05/16/2001 09/13/2001 06/30/2011

Commission, Hope VI Program

2001-PH-0803 Philadelphia, PA, 06/14/2001 06/14/2001 10/11/2005

Homeownership Center, Single

Family Disposition Activities

2001-AT-0001 Nationwide Audit Results on 06/29/2001 01/29/2002 02/15/2006

the Officer/Teacher Next Door

Program

2002-SF-0001 Nonprofit Participation, HUD 11/05/2001 08/30/2002 Note 1

Single Family Program

2002-CH-1801 Housing Authority of the City 01/29/2002 05/18/2002 05/15/2005

of Evansville, IN

Tables

Tables 139
Report Report Title Issue Decision Final

Number Date Date Action

2002-FO-0002 Federal Housing Administration, 02/22/2002 05/30/2002 12/31/2006

Audit of FY 2001 and 2000

Financial Statements

2002-NY-0001 Nationwide Audit Asset Control 02/25/2002 06/17/2002 Note 2

Area Program, Single Family

Housing

2002-FO-0003 HUD, Audit of Fiscal Years 02/27/2002 08/16/2002 Note 1

2001 and 2000 Financial

Statements

2002-PH-1001 Williamsport, PA, Community 03/19/2002 08/27/2002 11/15/2005

Development Block Grant and

Home Investment Partnership

Programs

2002-BO-1001 City of Worcester, MA, CDBG 03/27/2002 08/29/2002 07/01/2005

Program

2002-BO-1003 Newport, RI, Resident 04/30/2002 09/16/2002 01/15/2008

Council, Inc.

2002-AT-1002 City of Tupelo, MS, Housing 07/03/2002 10/31/2002 04/30/2010

Authority Housing Programs

Operations

2002-KC-0002 Nationwide Survey of HUD’s 07/31/2002 11/22/2002 Note 2

Office of Housing Section 232

Nursing Home Program

2002-AT-1808 Homeless and Housing Coalition 09/20/2002 03/31/2003 Note 2

of Kentucky, Inc., Frankfort, KY,

Outreach and Training Assistance

Grant

2002-NY-1005 The Legal Aid Society, New York, 09/23/2002 03/31/2003 Note 2

NY, Outreach and Training

Assistance Grant and Public

Entity Grant

2002-DE-1005 Crossroads Urban Center, Salt 09/25/2002 03/31/2003 Note 2

Lake City, UT, Outreach and

Training Assistance Grants 

2002-DE-1002 Affordable Housing and 09/30/2002 03/31/2003 Note 2

Homeless Alliance, Honolulu, HI,

Outreach and Training Assistance

Grant and Intermediary Outreach

and Training Assistance Grant

Tables

Tables 140
Report Report Title Issue Decision Final

Number Date Date Action

2002-FW-1003 New Mexico Public Interest 09/30/2002 03/31/2003 Note 2

Education Fund, Albuquerque,

NM, Outreach and Training

Assistance Grant and Public

Entity Grant

2002-PH-1002 Virginia Poverty Law Center, 09/30/2002 03/31/2003 Note 2

Richmond, VA, Outreach and

Training Assistance Grant

2002-PH-1003 Delaware Housing Coalition, 09/30/2002 03/31/2003 Note 2

Dover, DE, Outreach and

Training Assistance Grant and

Intermediary Outreach and

Training Assistance Grant

2002-PH-1004 Tenants’ Action Group of 09/30/2002 03/31/2003 Note 2

Philadelphia, PA, Outreach and

Training Assistance Grant

2002-PH-1006 Legal Aid Bureau, Inc., 09/30/2002 03/31/2003 Note 2

Baltimore, MD, Outreach and

Training Assistance Grant

Number FFOT0020MD

2002-PH-1007 Legal Aid Bureau, Inc., 09/30/2002 03/31/2003 Note 2

Baltimore, MD, Outreach and

Training Assistance Grant

Number FFOT98012MD

2002-SF-1006 Legal Aid Society of Honolulu, 09/30/2002 03/31/2003 Note 2

HI, Outreach and Training

Assistance Grant

2003-DE-1001 Sicangu Wicoti Awanyakepe 10/08/2002 02/28/2003 07/31/2005

Corp, Rosebud, SD, Indian

Housing Block Grant Program

2003-AT-1801 South Carolina Regional 10/09/2002 02/06/2003 10/31/2005

Housing Authority No. 3,

Barnwell, SC

2003-CH-1003 Tenants United for Housing, 10/29/2002 03/31/2003 Note 2

Inc., Chicago, IL, Outreach

and Training Assistance Grants

2003-SE-1001 Community Alliance of Tenants, 10/31/2002 03/31/2003 Note 2

Portland, OR, Outreach and

Training Assistance Grant

Tables

Tables 141
Report Report Title Issue Decision Final

Number Date Date Action

2003-KC-1801 University Forest Nursing Care 11/14/2002 02/24/2003 Note 1

Center, University City, MO

2003-SE-1002 Tenants Union, Seattle, WA, 12/02/2002 03/31/2003 Note 2

Outreach and Training Assistance

Grant and Intermediary Training

Assistance Grant

2003-AT-1001 Northwestern Regional Housing 01/09/2003 06/02/2003 01/09/2006

Authority Public Housing

Programs, Boone, NC

2003-FO-0002 Federal Housing Administration 01/21/2003 05/22/2003 12/31/2006

Audit of Fiscal Year 2002 and

2001 Financial Statements

2003-PH-1002 Philadelphia, PA, Housing 01/27/2003 06/11/2003 04/30/2005

Authority, Contracting and

Purchasing Activity

2003-FO-0004 Audit of HUD’s Financial 01/31/2003 05/22/2003 10/31/2005

Statements Fiscal Years 2002

and 2001

2003-NY-1001 Marion Scott Real Estate, Inc., 02/12/2003 06/13/2003 Note 2

Management Agent, New York,

NY

2003-FW-1001 Housing Authority of the City 02/21/2003 06/20/2003 12/31/2005

of Morgan City, LA, Low-Rent

Program

2003-KC-1803 Richmond Terrace Retirement 03/24/2003 06/19/2003 10/01/2005

Center, Richmond Heights, MO

2003-NY-1003 Empire State Development 03/25/2003 07/16/2003 Note 2

Corporation, New York, NY,

CDBG Disaster Assistance Funds

2003-CH-1014 Coshocton, OH, Metropolitan 03/28/2003 07/28/2003 04/30/2047

Housing Authority, Public

Housing Program

2003-DE-0001 HUD Office of Multifamily 03/31/2003 03/31/2003 Note 2

Housing Assistance

Restructuring’s Oversight of

the Sec 514 Program Activities

2003-FW-1004 Spanish Village Community 04/28/2003 08/18/2003 Note 2

Development Corporation,

Houston, TX, Upfront Grant &

HOME Loan

Tables

Tables 142
Report Report Title Issue Decision Final

Number Date Date Action

2003-CH-0001 HUD’s Oversight of 05/07/2003 09/11/2003 09/30/2005

Empowerment Zone Program

2003-BO-1003 City Of Bridgeport, CT, Home 05/16/2003 09/16/2003 07/31/2005

Investment Partnership Program

2003-CH-1017 Housing Continuum, Inc., 06/13/2003 10/10/2003 Note 2

Homebuyers Assistance

Program, Geneva, IL

2003-KC-0001 Survey of HUD’s Administration 06/24/2003 07/10/2003 Note 2

of Section 3 of the HUD Act

of 1968

2003-AO-0002 HUD Training Academy 07/15/2003 10/24/2003 Note 2

2003-BO-1004 Brockton, MA, Housing 07/17/2003 10/16/2003 04/30/2005

Authority, Portability Features

of the Section 8 Housing Choice

Voucher Program

2003-CH-1018 Chicago, IL, Housing 07/18/2003 01/14/2004 12/31/2005

Authority, Outsourced Property

Management Contracts Review

2003-NY-1005 Empire State Development 09/30/2003 01/28/2004 03/31/2007

Corporation, New York, NY,

CDBG Disaster Assistance Funds

2004-KC-1001 East Meyer Community 11/24/2003 03/29/2004 11/30/2005

Association, Use of HUD Grant

Funds, Kansas City, MO

2004-FO-0001 Federal Housing 11/25/2003 02/25/2004 Note 2

Administration Audit of Fiscal

Year 2003 and 2002 Financial

Statements

2004-CH-1001 Kankakee, IL, County Housing 11/26/2003 03/24/2004 12/31/2005

Authority, Section 8 Housing

Program

2004-CH-1002 Waukesha County CDBG and 11/26/2003 04/29/2004 06/30/2005

HOME Investment Partnership

Programs, Waukesha, WI

2004-PH-0001 Procedures for Filing Uniform 11/26/2003 04/14/2004 04/14/2005

Commercial Code Continuation

Statements

2004-DP-0001 Fiscal Year 2003 Review of 12/01/2003 05/28/2004 06/30/2005

Information Systems Controls

in Support of the Financial

Statements Audit

Tables

Tables 143
Report Report Title Issue Decision Final

Number Date Date Action

2004-BO-1004 Danbury, CT, Housing 12/05/2003 04/05/2004 12/01/2008

Authority, Capital Fund

Program

2004-BO-1005 Springfield, MA, Housing 12/10/2003 04/23/2004 02/28/2007

Authority

2004-DE-0001 Nationwide Review of 12/15/2003 04/13/2004 04/15/2005

Indemnification for Claims on

Single-Family Insured Loans

2004-FO-0003 HUD Audit of Fiscal Year 12/19/2003 07/20/2004 09/30/2005

2003 and 2002 Financial

Financial Statements

2004-SE-1002 Scheller-Hess-Yoder and 01/09/2004 05/05/2004 05/31/2005

Associates, Nonsupervised

Loan Correspondent, Portland, OR

2004-AT-0001 Public Housing Authority 01/13/2004 05/20/2004 05/13/2005

Development Activities

2004-AT-1001 Housing Authority of 01/15/2004 05/14/2004 12/31/2006

the City of Cuthbert, GA,

Administration of Housing

Development Activities

2004-BO-0006 Portability Features of the 01/15/2004 05/14/2004 04/30/2005

Section 8 Housing Choice

Voucher Program

2004-PH-1002 Allegheny County Housing 01/16/2004 05/14/2004 05/14/2005

Authority, Public Housing Drug

Elimination Grant Program,

Pittsburgh, PA

2004-FW-1001 City of Little Rock, AR, 01/26/2004 05/25/2004 05/19/2005

Housing Authority, Procurement

and Asset Control

2004-AO-0001 Award and Administration of 02/06/2004 06/30/2004 07/01/2005

Lead-Based Paint Hazard

Reduction Grants

2004-BO-1006 Nuestra Casa: Project 02/18/2004 05/24/2004 05/24/2005

Management Operations,

Boston, MA

2004-DP-0002 Application Control Review of 02/25/2004 07/14/2004 03/31/2006

the Tenant Rental Assistance

Certification System

Tables

Tables 144
Report Report Title Issue Decision Final

Number Date Date Action

2004-FW-1002 Jester Trails Apartment, 02/26/2004 05/18/2004 05/16/2005

Multifamily Project,

Houston, TX

2004-KC-1002 Timberlake Care Center, Use 03/10/2004 07/08/2004 07/08/2005

of Project Funds, Kansas

City, MO

2004-DE-1002 Treehouse Mortgage, LLC, 03/11/2004 07/07/2004 10/31/2005

Nonsupervised Loan

Correspondent, Denver, CO

2004-FW-1003 City of New Orleans, LA, 03/15/2004 09/07/2004 05/13/2005

Section 108 Loan Program,

Jazzland Theme Park

2004-PH-0003 HUD’s Oversight of the 03/17/2004 08/16/2004 08/16/2005

Philadelphia, PA, Housing

Authority’s Moving to Work

Program

2004-LA-1001 Keystone Mortgage and 03/24/2004 06/25/2004 09/15/2005

Investment Company,

Nonsupervised Loan

Correspondent, Phoenix, AZ

2004-NY-1001 Empire State Development 03/25/2004 06/30/2004 05/31/2005

Corporation, CDBG Disaster

Assistance Funds, New York, NY

2004-PH-1004 Carbondale Nursing Home, 03/25/2004 07/23/2004 07/22/2005

Section 232 Project

Operations, Carbondale, PA

2004-PH-1005 Petersburg, VA, Redevelopment 03/25/2004 06/01/2004 04/01/2005

and Housing Authority,

Nonfederal Entities

2004-FW-1004 Housing Authority of the City 03/26/2004 07/23/2004 10/15/2009

of Corpus Christi, TX,

Financial Management of

HUD Programs

2004-SE-1003 Uptown Towers Apartments, 03/26/2004 06/10/2004 05/01/2005

Portland, OR

2004-AT-1006 Puerto Rico Public Housing 04/22/2004 07/12/2004 07/11/2005

Administration, San Juan, PR

2004-FW-1006 San Antonio, TX, Housing 04/26/2004 12/08/2004 07/31/2005

Authority, HOPE VI Program

Tables

Tables 145
Report Report Title Issue Decision Final

Number Date Date Action

2004-AT-1007 Housing Authority of the City 04/28/2004 07/01/2004 04/28/2005

of Asheville, NC

2004-LA-1003 Homewide Lending Corporation, 05/19/2004 09/01/2004 09/30/2005

Nonsupervised Mortgagee,

Los Angeles, CA

2004-AT-1009 Housing Authority of the City 05/20/2004 09/13/2004 09/13/2005

of Northport, AL

2004-SE-1004 Seattle, WA, Housing Authority, 05/21/2004 09/20/2004 12/31/2005

Moving to Work Demonstration

Program

2004-PH-1007 City of McKeesport, PA, 05/28/2004 09/24/2004 03/31/2009

CommunityDevelopment Block

Grant Program

2004-PH-1008 Safe Haven Outreach Ministry, 06/30/2004 08/31/2004 04/22/2005

Incorporated, Washington, DC

2004-CH-1005 Connexions Enterprise, Inc., 06/17/2004 09/21/2004 09/08/2005

Supportive Housing Program,

Chicago, IL

2004-FW-0001 Management Controls over 06/18/2004 10/14/2004 10/27/2005

Grantee and Subgrantee

Capacity, Community Planning

and Development, Washington, DC

2004-DE-1003 Housing Authority of the City 06/22/2004 10/20/2004 10/31/2005

of Greeley, CO, and Weld County

Housing Authority Tenant Selection

and Continued Occupancy Activities

2004-FW-1007 City of New Orleans, LA, 06/22/2004 09/20/2004 04/30/2005

Desire Community Housing

Corporation

2004-CH-1006 Housing Authority of the City 06/23/2004 08/26/2004 06/30/2008

of Evansville, IN, Housing

Assistance Payment Savings

Refunding Agreements

2004-PH-1009 First Funding, Incorporated, 06/29/2004 10/25/2004 10/31/2005

Nonsupervised Loan

Correspondent, Largo, MD

2004-LA-1005 Guild Mortgage Company DBA, 07/09/2004 11/06/2004 12/31/2005

Residential Mortgage Bankers,

San Diego, CA

Tables

Tables 146
Report Report Title Issue Decision Final

Number Date Date Action

Tables

Tables 147

2004-AT-0002 Effectiveness of the 07/12/2004 12/13/2004 12/31/2005

Departmental Enforcement

Center

2004-KC-1003 Wells Fargo Home Mortgage, 07/16/2004 03/25/2005 01/31/2006

Nonsupervised Direct

Endorsement Lender,

Des Moines, IA

2004-AT-1011 Opelika, AL, Housing Authority, 07/23/2004 07/23/2004 04/30/2005

Public Housing Programs

2004-KC-1004 Gershman Investment 07/28/2004 11/12/2004 11/30/2005

Corporation, Nonsupervised

Direct Endorsement Lender,

Clayton, MO

2004-AT-1012 Housing Authority of the City 08/02/2004 11/29/2004 12/31/2020

of Durham, NC

2004-PH-1010 Lambeth Apartments, Section 08/04/2004 10/02/2004 08/01/2005

236/Section 8, Multifamily

Housing Review, Pittsburgh, PA

2004-KC-1005 The City’s Housing Program and 08/11/2004 08/17/2004 10/31/2005

The Role of the Housing and

Economic Development Finance

Agency, Kansas City, MO

2004-AT-1013 Housing Authority of the City 08/19/2004 12/15/2004 11/30/2005

of Lakeland, FL

2004-SE-1006 Apreva, Inc., Nonsupervised 08/19/2004 01/11/2005 07/31/2006

Mortgagee, Bellevue, WA

2004-CH-1008 Cornerstone Mortgage Group, 09/10/2004 01/05/2005 01/31/2006

Limited Nonsupervised Loan

Correspondent, Inverness, IL

2004-PH-1012 Mortgage America Bankers, LLC, 09/10/2004 01/06/2005 09/30/2006

Nonsupervised Loan

Correspondent, Kensington, MD

2004-FW-1008 United Properties Management, 09/14/2004 01/13/2005 11/30/2005

Inc., Multifamily Management

Agent, Little Rock, AR

2004-NY-1004 Lower Manhattan Development 09/15/2004 01/12/2005 06/30/2005

Corporation, Community

Development Block Grant Disaster

Assistance Funds, New York, NY
Report Report Title Issue Decision Final

Number Date Date Action

Tables

Tables 148

2004-NY-1804 Buffalo, NY, Municipal Housing 09/15/2004 01/04/2005 12/10/2005

Authority, Micro Loan Program

2004-FW-1009 Mays Property Management, Inc., 09/17/2004 02/23/2005 06/30/2005

Multifamily Management Agent,

Little Rock, AR

2004-LA-1007 Housing Authority of Maricopa 09/22/2004 01/14/2005 01/20/2006

County, Phoenix, AZ

2004-CH-1009 Decatur Mortgage Company, 09/23/2004 02/24/2005 12/09/2005

LLC, Nonsupervised Loan

Correspondent, Indianapolis, IN

2004-LA-1008 United States Veterans Initiative, 09/27/2004 03/31/2005 01/04/2006

Inc., Inglewood, CA

2004-NY-1005 Jersey City, NJ, Housing 09/27/2004 12/17/2004 04/29/2005

Authority, Section 8 Contract

Administrator

2004-DE-1004 New Freedom Mortgage 09/29/2004 01/28/2005 06/30/2005

Corporation, Single Family Direct

Endorsement Mortgagee, Salt Lake

City, UT

2004-FW-1010 Housing Authority of the City of 09/29/2004 12/17/2004 10/31/2005

Houston, TX, Housing Choice

Voucher Subsidy Standards

2004-KC-0001 The Office of Federal Housing 09/30/2004 01/27/2005 09/01/2005

Oversight Exceeds its 60 Percent

Statutory Requirement, but Has

Cost Weaknesses in its Controls

Over Allocating Costs for that

Requirement

AUDITS EXCLUDED: NOTES:

26 audits under repayment plans 1 Management did not meet the

target date. Target date is over 1

year old.

27 audits under formal judicial review, 2 Management did not meet the

investigation, or legislative solution target date. Target date is under 1

year old.
Table C

Inspector General Issued Report with Questioned and Inspector General Issued Report with Questioned and

Unsupported Costs at 03/31/2005 Unsupported Costs at 03/31/2005

(Thousands)

Reports Number of Questioned Unsupported

Audit Reports Costs Costs

A1 For which no management 28 62,366 16,236

decision had been made by the

commencement of the reporting

period

A2 For which litigation, legislation, 10 15,915 5,066

or investigation was pending at

the commencement of the

reporting period

A3 For which additional costs were - 1,604 473

added to reports in beginning

inventory

A4 For which costs were added to 1 861 0

noncost reports

B1 Which were issued during the 45 87,524 62,048

reporting period

B2 Which were reopened during the 0 0 0

reporting period

 Subtotals (A + B) 84 168,270 83,823

C For which a management 461 119,367 55,844

decision was made during the

reporting period

(1) Dollar value of disallowed costs

 Due HUD 232 66,273 21,939

 Due program participants 27 43,355 26,951

(2) Dollar value of costs not 143 9,738 6,954

 disallowed

D For which management decision 16 20,700 8,794

had been made not to determine

costs until completion of litigation,

legislation, or investigation 

E For which no management 22 28,204 19,184

decision had been made by <55>4 <28,105>4 <19,180>4

the end of the reporting period 

1 29 audit reports also contain recommendations with funds to be put to better use.

2 6 audit reports also contain recommendations with funds due program participants.

3 12 audit reports also contain recommendations with funds agreed to by management.

4 The figures in brackets represent data at the recommendation level as compared to the report level. See

 Explanations of Tables C and D.

Tables

Tables 149
Table D

Inspector General Issued Report with Recommendations That Funds Be Inspector General Issued Report with Recommendations That Funds Be

Put to Better Use at 03/31/2005 Put to Better Use at 03/31/2005

(Thousands)

Reports Number of Dollar Value

 Audit Reports

A1 For which no management decision had been 19 468,753

made by the commencement of the reporting

period

A2 For which litigation, legislation, or investigation 5 14,126

was pending at the commencement of the

reporting period

A3 For which additional costs were added to reports - 1,982

in beginning inventory

A4 For which costs were added to noncost reports 0 0

B1 Which were issued during the reporting period 38 938,890

B2 Which were reopened during the reporting period 0 0

 Subtotals (A + B) 62 1,423,751

C For which a management decision was made 351

 1,207,900

during the reporting period

(1) Dollar value of recommendations that were

 agreed to by management

 Due HUD 192 1,142,390

 Due program participants 17 59,342

(2) Dollar value of recommendations that were 43 6,167

 not agreed to by management

D For which management decision had been made 7 17,438

not to determine costs until completion of

litigation, legislation, or investigation

E For which no management decision had been 20 198,412

made by the end of the reporting period <31>4 <198,412>4

1 29 audit reports also contain recommendations with questioned costs.

2 1 audit report also contains recommendations with funds due program participants.

3 4 audit reports also contain recommendations with funds agreed to by management.

4 The figures in brackets represent data at the recommendation level as compared to the report level. See

 Explanations of Tables C and D.

Tables

Tables 150
Explanations of Tables C and D Explanations of Tables C and D

The Inspector General Act Amendments of 1988 require Inspectors General and

agency heads to report cost data on management decisions and final actions on audit

reports. The current method of reporting at the “report” level rather than at the individual

audit “recommendation” level results in misleading reporting of cost data. Under the

Act, an audit “report” does not have a management decision or final action until all

questioned cost items or other recommendations have a management decision or final

action. Under these circumstances, the use of the “report” based rather than the

“recommendation” based method of reporting distorts the actual agency efforts to resolve

and complete action on audit recommendations. For example, certain cost items or

recommendations could have a management decision and repayment (final action) in a

short period of time. Other cost items or nonmonetary recommendation issues in the

same audit report may be more complex, requiring a longer period of time for

management’s decision or final action. Although management may have taken timely

action on all but one of many recommendations in an audit report, the current “all or

nothing” reporting format does recognize of their efforts.

The closing inventory for items with no management decision on tables C and D

(line E) reflects figures at the report level as well as the recommendation level.

  

Tables

Tables 151
HUD OIG Operations Telephone Listing HUD OIG Operations Telephone Listing

Office of Audit Office of Audit Office of Audit

Headquarters Office of Audit, Washington, DC 202-708-0364

Region I, Boston, MA 617-994-8380

Hartford, CT 860-240-4800

Region II, New York, NY 212-264-4174

Albany, NY 518-464-4200

Buffalo, NY 716-551-5755

Newark, NJ 973-622-7900

Region III, Philadelphia, PA 215-656-3401

Baltimore, MD 410-962-2520

Pittsburgh, PA 412-644-6372

Richmond, VA 804-771-2100

Region IV, Atlanta, GA 404-331-3369

Birmingham, AL 205-731-2630

Miami, FL 305-536-5387

Greensboro, NC 336-547-4001

Jacksonville, FL 904-232-1226

Knoxville, TN 865-545-4369

San Juan, PR 787-765-5202

Region V, Chicago, IL 312-353-6236

Columbus, OH 614-469-5737

Detroit, MI 313-226-6190

Region VI, Fort Worth, TX 817-978-9309

Houston, TX 713-718-3199

New Orleans, LA 504-589-7267

Oklahoma City, OK 405-609-8606

San Antonio, TX 210-475-6895

Region VII, Kansas City, KS 913-551-5870

St. Louis, MO 314-539-6339

Denver, CO 303-672-5452

Region IX, Los Angeles, CA 213-894-8016

Phoenix, AZ 602-379-7250

San Francisco, CA 415-489-6400

Region X, Seattle, WA 206-220-5360

Operations Telephone Listing

HUD OIG Operations Telephone Listing 152
Operations Telephone Listing

HUD OIG Operations Telephone Listing 153

Office of Investigation Office of Investigation

Headquarters Office of Investigation, Washington, DC 202-708-0390

Region I, Boston, MA 617-994-8450

Manchester, NH 603-666-7988

Meriden, CT 203-639-2810

Region II, New York, NY 212-264-8062

Buffalo, NY 716-551-5755

Newark, NJ 973-622-7900

Region III, Philadelphia, PA 215-656-3410

Baltimore, MD 410-962-4502

Pittsburgh, PA 412-644-6598

Richmond, VA 804-771-2100

Region IV, Atlanta, GA 404-331-3359

Miami, FL 305-536-3087

Greensboro, NC 336-547-4000

Jacksonville, FL 904-232-1226

Memphis, TN 901-544-0644

Nashville, TN 615-736-7000

San Juan, PR 787-766-5868

Tampa, FL 813-228-2026

Region V, Chicago, IL 312-353-4196

Cleveland, OH 216-522-4421

Columbus, OH 614-469-6677

Detroit, MI 313-226-6280

Indianapolis, IN 317-226-5427

Minneapolis-St. Paul, MN 612-370-3106

Region VI, Arlington, TX 817-652-6980

Houston, TX 713-718-3197

Little Rock, AR 501-324-5409

New Orleans, LA 504-589-6847

Oklahoma City, OK 405-609-8601

San Antonio, TX 210-475-6894

Region VII, Kansas City, KS 913-551-5866

St. Louis, MO 314-539-6559

Denver, CO 303-672-5350

Billings, MT 406-247-4080

Salt Lake City, UT 801-524-6090
  

Region IX, Los Angeles, CA 213-894-0219

San Francisco, CA 415-489-6683

Phoenix, AZ 602-379-7255

Sacramento, CA 916-498-5220

Las Vegas, NV 702-366-2144

Seattle, WA 206-220-5380

Operations Telephone Listing

HUD OIG Operations Telephone Listing 154
Report fraud, waste, and mismanagement

 in HUD programs and operations by:

Calling the OIG Hotline: 1-800-347-3735

Faxing the OIG Hotline: 202-708-4829

Sending written information to:

Department of Housing and Urban Development

Inspector General Hotline (GFI)

451 7th Street, SW

Washington, DC 20410

Emailing the OIG Hotline: hotline@hudoig.gov

Internet:

http://www.hud.gov/complaints/fraud_waste.cfm

All information is confidential,

and you may remain anonymous.
Semiannual Report to Congress

Office of Inspector General

Semiannual Report to Congress Semiannual Report to Congress

as of March 31, 2005 as of March 31, 2005

www.hud.gov/offices/oig www.hud.gov/offices/oig

No. 53 HUD-2005-13-OIG HUD-2005-13-OIG